rate Based on exhibit 1, we calculate the arithmetic average tax rate over 3 years (2004-2006) to forecast the tax rate in the future: Tax rate = Taxes/Income before taxes = 13741417910+1283032723+1174730447 = 0.397 = 39.7% WACC=Rd 1-TDV+ Re EV WACC=0.066 1-.39742.2%+ 0.1158 57.8%=8.37% Question 2: Exploration & Production Division: The risk free rate, the EMRP and the tax rate are the same as the previous question; they are used below to compute the costs. _Cost of Debt_
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------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Case Studies in Finance ------------------------------------------------- Case 34: The Wm. Wrigley Jr. Company Question 1: In the abstract, what is Blanka Dobrynin hoping to accomplish through her active-investor strategy? => Blanka Dobrynin is a managing partner of the Aurora Borealis
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Midland's cost of capital 1. I choose the rate of 30-year U.S. Treasury bonds in 2007 (4.98%) as the risk free rate in the 2007 WACC calculations. The reason is that majority of large firms and financial analysts report using long-term yields for bonds to determine the risk-free rate. Rf=0.0498 2. Cost of debt, which is determined by adding the spread to Treasury (1.62%) to the rate of 30-year treasury bonds in 2007. Rd=0.0498+0.0162=0.066 3. Cost of equity, the EMRP (5%) and D/E (59
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VALUATION TECHNIQUES Vault Guide to Finance Interviews Valuation Techniques How Much is it Worth? Imagine yourself as the CEO of a publicly traded company that makes widgets. You’ve had a highly successful business so far and want to sell the company to anyone interested in buying it. How do you know how much to sell it for? Likewise, consider the Bank of America acquisition of Fleet. How did B of A decide how much it should pay to buy Fleet? For starters, you should understand that the value
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performance. - To consider proposal for mergers and acquisitions. - To arrive at decision regarding stock repurchasing. At division or business unit level is well as corporate level; cost of capital is an essential component in WACC. 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland’s choice of EMRP appropriate? If not, what recommendations would you make and why? A- - rd = 30 years to US debt treasury
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Santangelo BMGT440F May Stephen 7, 2012 Mergers And Acquisitions Simulation Through this simulation, I was able to learn a significant amount about the Wine Industry. As of 2008, the United States was the third largest wine market in the world, with France and Italy being number one and two respectively. This being said, Wineries in the United States not only face tough national competition, but also fierce international competition for business. California produces over 90% of the wines in the United
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= 100/139.8 = 0.7153 WACC = rD (D/V)(1-t) + rE (E/V) = .0658(.2847)(1-.39) + .1073(.7153) WACC = 0.08818, 8.818% Refining & Marketing rE = rf + β(EMRP) rD = rf + R&M treasury spread rE = 4.98% + 1.20(5%) = 10.98% rD = 4.98% + 1.80% = 6.78% rE = 10.98% rD = 6.78% tax rate = 39% D/E = 20.3% D = 20.3 E = 100 V = D + E = 120.3 D/V = 20.3/120.3 = 0.1687 E/V = 100/120.3 = 0.8312 WACC = rD (D/V)(1-t) + rE (E/V) = .0678(.1687)(.61) + .1098(.8312) WACC = 0.09825%,
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company has been in business for over 120 years and employed more than 80,000 individuals. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources, has been asked to calculate the weighted average cost of capital (WACC) for the company as a whole, as well as each of its three divisions as part of an annual budgeting process. Midland’s Three Divisions: Exploration & Production Oil exploration and production (E&P) is Midland’s most profitable business, and its
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Joanna Cohen, her assistant, to develop a discounted cash flow forecast. Her analysis had a few flaws that will be pointed out in this paper through a new analysis. Cohen's first mistake was to use Nike's book value of equity in her calculation of the WACC; $3,494.50. Though the book value is an accepted estimate of the debt value, the equity's book value is an inaccurate measure of the value perceived by the shareholders, therefore an irrelevant source when finding the equity value. Moreover, Nike is
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developers in the US, which partly contributed to its high growth rate. This reduces the balance sheet assets and thus increase return on assets (ROA), which is a key indicator of profitability. Secondly, in investment area, Marriott uses separate WACC for different division of project to value each opportunity in order to maximally increase shareholders’ value. On condition that the forecasted cash flow and hurdle rate are not biased, the company’s method enables the corporation to only invest in
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