earnings is a part of the shareholder’s equity, and is reflected in the market value of equity. It should be included in the calculating the market value of equity. 8. All investors will receive their required rate of return. 9. As the WACC decreases due to the cost advantage of debt, the present value of the cash flows generated by the project will increase, consequently the NPV of the project will increase. 10. The lowest acceptable rate of return will not increase nor decrease the
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Coke Vs Pepsi 092506 1. Coke vs. Pepsi By: Brad Pearce, Les Pierce, Mike Puleo, Aaron Martinez, Lee Ann Whaley 2. 2000 Annual Sales 20.5 Billion 2005 Annual Sales 23.1 Billion Mistakes Made by Management Former CEO Doug Investor Raised price of syrup by 7.7% Upset bottlers who in turn raised the price of Coke First time in years Decreased overall volume and net income by 41% in two years Pushed heavily on carbonated drinks instead of sports drinks Case Background: Coke 3. Case Background: Coke
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Questions for the Roche case Case write-ups due on Wednesday, March 30, at 8:10 pm 1. Why is Roche seeking to acquire the 44% of Genentech it does not own? From Roche’s point of view, what are the advantages of owning 100% of Genentech? What are the risks? (1 pt) Roche already had 56% of shares of Genentech and now it seeks to acquire rest of the 44% shares so as to get the benefits of synergies. The pharmaceutical companies have been unable to introduce new products lately, and their only
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Hershey Trust Stock Sale This week’s case study looks to evaluate whether or not Hershey’s Trust Company should sell its majority of holdings in the Hershey Food Company and exploring options to diversify their stock position. The assumption made through the reading is that the trust company wants diversify the holdings as a single stock could potentially be detrimental to the overall health of the stock portfolio (Bruner, Kenneth Eades, & Schill, 2014). Due to the structure of the organization
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VALUATION Outline Page Valuation overview 1 DCF valuation 7 47 Comparable transactions analysis 59 LBO analysis 68 Appendix VALUATI O N Comparable companies analysis 74 VAIDYA NATHAN 1 Overview “Price is what you pay. Value is what you get” VALUATI O N O V E R VI EW Value ! Price Do not confuse Price and Value. They are not the same If the Price paid is less than the Value derived, it’s a good investment VAIDYA NATHAN
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Running head: UNDERSTANDING THE CONCEPTS Understanding the Concepts Freddie Bailey FIN 100 Professor John Underwood May 27, 2012 Identify the components of a stock’s realized return. A realized return is the amount of actual gain that is made on the value of a portfolio over a specific evaluation period. The components of a stock are realized return is dividends, distributions, and share price appreciation. Dividends play a very important role in stock realized
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for various Capital Structures We used the Hamada equation to estimate the impact of the financial leverage on beta. This calculation is done in the table 5.2. The leveraged beta is utilized to estimate the true weighted average cost of capital (WACC) for various capital structures. Table 5.2 estimated the cost of equity, leveraged beta, weighted average cost of capital, free cash flow and the value of the assets for various capital structures. {draw:frame} Table 5.2 – Value of Assets
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Case Analysis: Midland Energy Resources, INC.: Cost of Capital Midland’s consolidated balance sheet and its access to global financial and commodity markets Midland Energy Resources, Inc. was a global integrated oil and gas company. It had sometimes presented attractive opportunities to trade securities and commodities. Midland was been incorporated more than 120 years with more than 80000 employees in 2007. Midland conservative compared to some of its large competitors, but it did have a group
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REVISED PROBLEM BASED ON CHAPTER 15 – WACC & THE HAMADA FORMULA Bickley’s Unlevered Beta: bu = b / (1+(1-T) ( D/S) = 1.3/( 1+(1-.40)(30/70) = 1.3 / (1+(.60) (.4286)) = 1.03 Bickley’s New Levered Beta: bL = bu X (1+(1-.40) ( 15/85) = 1.03 X (1 + (.60)(0.1765) = 1.14 Bickley’s WACC with the 30/70 Capital Structure: Cost of Equity: ke = 3.5% +(1.3 X 7.5) = 13.25% WACC = [7.5% X (1 - .40) X 30%] + [13.25% X 70%] = 1.35% + 9.28% = 10.63% Bickley’s WACC with the 15/85 Capital Structure:
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Inc: [pic] Dameron Fuel Services: [pic] Average for R&M: [pic] Now we can use the results above and the respective capital structures as provided in Table 1 about the E&P and R&M divisions to estimate the their equity beta, cost of equity and WACC. As listed in Table 1, Debt/values(V=D+E) of Exploration & Production and Refining & Marketing are 46% and 31.0% respectively, and The calculation to fine Equity Beta is: [pic] So Equity beta for E & P division is [pic]; Equity beta for R & M division
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