To obtain a true NPV of a project, one must include the value of the interest tax shield. When the firm adjusts their debt annually to a target level, the tax shield is still discounted at rate rD respectively. This can also be used when the WACC process is utilized to determine the overall NPV of a project for a firm. Due to the fact that the firm
Words: 976 - Pages: 4
Road Kings Trucks Abstract This paper is an analysis of Road King Trucks’ new project which is introducing a new product into its product line. I will decide whether run the project or not. Six issues will be discussed as follows 1) importance of energy cost; 2) project’s cash flows; 3) cost of capital; 4) choose an engine 5) evaluation 6) accept or reject. We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the
Words: 908 - Pages: 4
Capital Structure Decisions: The Basics Capital structure theory Overview of capital structure effects Business versus financial risk The effect of debt on returns Basic Definitions • • • • • V = value of business FCF = free cash flow WACC = weighted average cost of capital rs and rd are costs of stock and debt re and wd are percentages of the business that are financed with stock and debt. • VU = value of unleveraged business • VL = value of leveraged business Capital Structure Theory
Words: 1483 - Pages: 6
basis for the NPV. d. 1. Internal rate of return is the rate of return used in capital budgeting to measure profitability of investments. Year 0 1 2 3 Project L -100 10 60 80 Project S -100 70 50 20 Project L IRR = 18.13% (using function) WACC= 10% Project S IRR = 23.56% 2. The YTM is the expected rate of return on a project as it is the rate to be given on a bond. Essentially,
Words: 1619 - Pages: 7
Telecommunication Services Inc. (TSI) is a company that was founded in nothern region back in 1994 by the Adamson’s family. The company provide an address and phone number for small companies which may not have a full-time office staff but still need to respond rapidly to the inquiries from their customers. The company soon expanding due to the development of IT industry and due to the numerous demand for its services. Due to those factors, additional to the emerging growth industry for telecommunication
Words: 2174 - Pages: 9
------------------------------------------------- ------------------------------------------------- Analysis ------------------------------------------------- Of ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Mercury Athletic Footwear: Valuing the Opportunity By Christian Daba Submitted To John Katkish Background
Words: 1047 - Pages: 5
Synopsis: Dow is acquiring Rohm and Haas from Ingersoll-Rand at an agreed price per share of $78. However, a deal with Kuwait’s Petrochemical Industries Company, which was supposed to generate $7 billion of cash to be used to finance the acquisition, had recently fell-through. The hiccup has led to Rohm taking legal action to force Dow to complete the acquisition as required by the merger agreement. The standalone value of Rohm’s share price is currently at $46.77 while the synergies could almost
Words: 2181 - Pages: 9
Earnings per share? e. Debt interest coverage ratios and financial flexibility? f. Voting control by the Wrigley family? 3. What is Wrigley’s current (pre-re-capitalization) weighted-average cost of capital (WACC)? 4. What would you expect to happen to Wrigley’s WACC if it issued $3 billion in debt and used the proceeds to pay a dividend or to repurchase shares? 5. Should Blanka Dobrynin try to convince Wrigley’s directors to undertake the recapitalization? Management Summary
Words: 1123 - Pages: 5
Case Project Case # 1: Valuation “ Mercury Athletic Footwear : Valuing the Opportunity” FIN 321 Dr. Ghosh Edward Pinela Adriana Nava Kristie Tillett Grace Tung Zhibin Yang Mercury Athletic Footwear 1. Is Mercury an appropriate target for AGI? Why or why not? There is sufficient evidence to suggest it will be advantageous for AGI to acquire Mercury Athletics. Factored into the decision is the lack of information on the work culture both firms currently possess.
Words: 1178 - Pages: 5
such that Disney can maintain its target capital structure without issuing additional shares of equity. What is the WACC? c. Suppose now that there is not enough internal cash flow and the firm must issue new shares of stock. Qualitatively speaking, what will happen to the WACC? 3. GRENLEC Power Co. has the following information and a tax rate of 35 percent. Find the company’s WACC. Debt 5,000, 7 percent coupon bonds outstanding, $1,000 par value, 20 years to maturity, selling for 92 percent
Words: 572 - Pages: 3
