= $10,000,000 1. Calculate the firm's WACC = 50% (4%)(1-40%) + 20%(12%) + 30%(6%) = .50(.04)(1-.40) + .20(.12) + .30(.06) = 0.012 + .042 = .054 or 5.4 % 2. If, as the firm's CFO, you wished to lower the WACC, make up a set of new dollar figures using different amounts of common stock, preferred stock, and long-term debt that would lower the WACC. Show the calculations to demonstrate that the new capital structure has a lower WACC than the original structure. Capital | Debt
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All companies must make decisions about how they will finance their current and future operations. Firms can elect to borrow funds or they can sell stakes in the company to shareholders. For companies to make these decisions, they need to consider the capital structure, or mix of debt and equity, of the firm. They must also determine the cost of their debt, the cost of their equity, and the cost to acquire new capital. Generally, a firm’s cost of capital is what it costs the firm to acquire money
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INTRODUCTION This memo addresses the feasibility of the NESA project and provides a brief overview of: our financial condition, the iron ore market, major risks associated with this project, estimated project NPV, and the benefits of the financing packages. From our analysis, the NPV of this project is $137.36M - $104.31M. While there is risk associated with venturing into an unfamiliar market in a politically volatile country, the debt financing packages mitigate this risk. Thus, we believe that
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CALCULATION of WACC for Quarter 2 (Based on the “Summary Data” from Sample Quarter 1) What is the market value of the capital raised by debt? (for debt, book value approx = market value) Short-term Loans Maturing $ 0 Intermediate Term Debt Maturing $1,850,000 Current Liabilities Bond Maturing $1,200,000 Intermediate Loans 2 year $ 937,500 3 year $ 0 Long Term Liabilities Bonds $1,200,000 Total Capital Raised by Debt $5,187,500 What is the market
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= 800 Cost of Equity = Risk Free Rate + AVG Beta (Market Risk Premium Rate) =8% + 1.15 (5.5%) = 14.33% Cost of Capital = Cost of Equity (Risk Free Rate) + YTM (1- Tax Rate)(Debt Portion) = 14.33% (0.8) + 10% (1-0.4) (0.2) = 12.66% Therefore WACC = 12.66%. This value can be used to discount any project ii. The firm is proposing borrowing an additional RM200 million in debt and repurchasing stock. If it does so its rating will decline to A, with a market interest rate (yield to maturity)
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Q1. What are the determinants of a company’s cost of capital? A corporate cost of capital can be specifically defined as the opportunity cost of all capital invested in the enterprise. Opportunity cost refers to what is given up as a consequence of a decision to use a scarce resource, capital invested refers to the total amount of cash invested into a business, and this includes both debt and equity components used in the investment in the enterprise. A three step process is used to calculate
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calculator, input the following: CF0 = 0, CF1 = 2.40, and CF2 = 60.99 (2.88 + 58.11) and then enter I/YR = 12.3 to solve for NPV = $50.50. Question 1. Rollins Corporation (RC) is estimating its weighted average cost of capital. (WACC). Its target capital structure is 20% debt, 20% preferred stock and 60% common equity. Its outstanding bonds have a 12% coupon rate, paid semiannually, a current maturity of 20 years, and sell in the marketplace for $1,000. RC could sell at par, $100
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INDICE Introduccion………………………………………………………………………….. 3 Marco teorico ………………………………………………………………………… 4 Definicion de Leverage………………………………………………………………. 5 Leverage operativo y riesgo operacional……………………………………………... 5 Leverage financiero y riesgo financiero……………………………………………… 9 INTRODUCCION De acuerdo al diccionario ingles-español de Google, la traducción literal del termino “leverage” al idioma español es apalancamiento. El apalancamiento es
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INCAE 11829 EL COSTO DEL CAPITAL Y LOS PROYECTOS DE INVERSION Tomado de INVERSIONES. Por Werner Ketelhohn, J. Nicolás Marin y Eduardo Montiel, Bogotá, Grupo Editorial Norma, 2004, Cap 5, pag 93-113. Reproducida en el INCAE para servir como base de discusión en clase, más bien que como ilustración del manejo correcto o incorrecto de la gestión administrativa DISTRIBUCION RESTRINGIDA ·. E··L· ·I_n · D· E·:L ·C···'A··P·J,.....AL. \''LOS PROYEC'TOS ·. ·:=a··'·· C·.:·OS··~()·····
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Wal-Mart and Target WACC We computed the WACC for Wal-Mart and Target based on their most current financials. The weights of debt and equity were obtained from MorningStar.com. The risk free rate is the current rate for 30 year treasuries, and the cost of debt is the current 20 year rate on corporate bonds rated AA and A+. The tax rates were estimated by dividing the taxes paid from the operating income from Wal-Mart and Targets income statements. The market risk premium was obtained from the
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