Bond yield and cost of debt 9 Table 2: Sinking fund cash flow 11 Table 3: Own-bond-yiel-plus-risk-premium 12 Table 4: Cost of Equity, CAPM 14 Table 5: Cost of Equity, DCF 15 Table 6: Issuance of new common stock 18 Table 7: PNC’s WACC 18 Table 8: Capital budget 19 Table 9: Project evaluation 20 Table 10: Capital structure (weights) 21 Table 11: Capital structure (costs) 21 Table 12: Euro-denominated bonds 22 Executive Summary
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How can their value be estimated? Answer: Assets-in-place are tangible, such as buildings, machines, inventory. Usually they are expected to grow. They generate free cash flows. The PV of their expected future free cash flows, discounted at the WACC, is the value of operations. c. What are growth options? How can their value be estimated? Answer: Growth options are not tangible. They include R&D, such as at drug companies and genetic engineering companies, and building customer relationships
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average cost of capital (WACC) is used to measure a firm’s cost of capital. 2. What are some capital budgeting tools? Explain Net Present Value (NPV) analysis. (Due by midnight on Thursday) Different tools used in capital budgeting include NPV, discounted-cash-flow analysis, IRR, and MIRR. NPV is used to evaluate capital budgeting projects by determining the difference between the market value of an item and what it costs. 3. What is the weighted average cost of capital (WACC)? How is it calculated
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h case Applied corporate finance | TeleTech Corporation 2005 | Case Analysis | | | | | CONTENTS 1. Executive Summary 2. Introduction 3. Analysis 4. Conclusion 1. Executive Summary Teletech Corporation is one of the frontrunners in Telecommunications industry. The company is mainly concentrated along two lines of business, the first being Telecommunication services and the second being Products and Systems (P&S) Segment. Telecommunication
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the project, and the cash flows the firm will have if it rejects the project. Although they are a cash expense, interest expenses are not included in project cash flows. We discount a projects cash flows by using its weighted average cost of capital (WACC), which already includes the cost of debt. Therefore, we do not include interest expenses in cash flows because it would essentially be counting them twice. 2. The $150,000 test marketing cost should not be included in the analysis because it is
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Value Based Business Steering / Value Based Management Han Levink 2 maart 2004 1. 1.1 Inleiding Shareholder Value De focus van het management op het creëren van aandeelhouderswaarde heeft de afgelopen jaren in navolging van de Verenigde Staten ook in West Europa een sterke vlucht genomen. Een belangrijke oorzaak van deze toegenomen aandacht is de overnamegolf eind jaren tachtig van de vorige eeuw in de Verenigde Staten. Bedrijven die een zogenaamd positieve “value gap” lieten zien, waren
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CHAPTER 11 CORPORATE VALUATION AND VALUE-BASED MANAGEMENT (Difficulty: E = Easy, M = Medium, and T = Tough) True/False Easy: (11.1) Corporate valuation model Answer: b Diff: E 1 . The corporate valuation model cannot be used unless a company doesn’t pay dividends. a. True b. False (11.2) Free cash flows and valuation Answer: a Diff: E 2 . Free cash flows should be discounted at the firm’s weighted average cost of capital to find the value of its operations. a. True b. False (11.3) Value-based
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The Cost of Capital 11-1 a. The weighted average cost of capital, WACC, is the weighted average of the after-tax component costs of capital—-debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal, or target, capital structure. b. The after-tax cost of debt, kd(1 - T), is the relevant cost to the firm of new debt financing. Since interest is deductible from taxable income, the after-tax cost of debt to the firm is less
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capital?” Survey Findings The detailed survey results appear in Exhibit 2. The estimation approaches are broadly similar across the three samples in several dimensions. • Discounted Cash Flow (DCF) is the dominant investment-evaluation technique. • WACC is the dominant discount rate used in DCF analyses. • Weights are based on market not book value mixes of debt and equity.8 • The after-tax cost of debt is predominantly based on marginal pretax costs, and marginal or statutory tax rates. • The
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the report, Joanna Cohen used weighted average cost of capital (WACC) to calculate the cost of capital. The main issue of this case is the estimation of cost of capital, why it is important in the business world. Missing Information / Assumptions: I think this case provides enough information for using different approaches to estimate WACC. Analysis of Facts: I do not completely agree with Joanna Cohen’s calculation of WACC. There are several problems in her calculation: • Instead of
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