of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake. Conclusion: After calculating the NPV and the IRR for each project, I have determined that both the dishwasher and the trash compactor projects should be pursued. Both of them have shown positive NPVs at the new discount rate of 11.58% (WACC). Both projects
Words: 1747 - Pages: 7
Capital Budgeting Overview The capital structure of a company is derived from portions of debt and equity. Debt can be categorized as either long-term or short-term debt. Short-term debt can be classified as notes payable and accounts payable and long-term debt can be classified under bonds. The equity portion of a company’s debt lies within common and preferred stock. Debt is used as a form of leverage to ultimately increase the overall return on an investment. The more debt and equity, capital
Words: 2170 - Pages: 9
Capital Budget Recommendation for Guillermo Lynda D. Keller ACC543 June 23, 2014 Richard Collins Capital Budget Recommendation for Guillermo The first and most necessary goal of any organization is to maximize shareholder wealth. Maximizing shareholder wealth includes identifying and analyzing future projects that can provide value. Typically in a risk-return trade off the greater the risk, the higher the return. According to Krenz and Miller, “organizations undertake risky directions when
Words: 1044 - Pages: 5
will need to raise new common stock this year Its investment bankers anticipate that the total flotation cost will equal 10% of the amount issued Assume the company accounts for flotation costs by adjusting the cost of capital Calculate the company’s WACC 9-6 Problem 5: Company’s capital structure 40% debt 60% common equity The company has 20-year bonds outstanding with a 9% annual coupon that are trading at par Tax rate is 40% 9-7 The risk-free rate is 5,5% The market risk
Words: 985 - Pages: 4
Methodological Approach to the Valuation a) WACC (Weighted Average Cost of Capital) - When we are supposed to value AirThread Connections with the WACC valuation method we will have to use the following steps: * Determine the unlevered free cash flows of the investment. * Compute the weighted average cost of capital with the following formula: * Compute the value with leverage, VL, by discounting the free cash flows of the investment using the WACC. APV (Adjusted Present Value) – This
Words: 1013 - Pages: 5
Alternative Approaches to Valuation of Private Companies 1) 2) 3) 4) 5) Comparables Net Present Value Approach Adjusted Presented Value Approach The ‘Venture Capital’ Method Options Analysis Each approach has advantages and disadvantages. Generally there is no “right” answer to a valuation problem. Valuation is very much an art as much as a science! 1 Evaluation of Comparables How to compute comparables: Start with a sample of securities whose business characteristics are similar to the
Words: 1614 - Pages: 7
that will be analyzed include: the impact on share price, cost of capital, earnings per share, agency cost of debt, voting control, signaling & clientele effect and debt coverage & financial flexibility. Analysis Impact on stock price and WACC The leverage does not affect firm value and as such Wrigley should not prefer any particular capital structure. As payments made towards debt are tax deductable the issuing of debt will increase firm value by providing a tax shield. As the role of
Words: 1190 - Pages: 5
Q1-1.What situation was Khemka family involve during the case? SUN Brewing was founded in 1992 by Shiv Khemka with Nand, his father, and his brother, Uday. The situation is set in March 1999, when the company was facing a major crisis. In 1998, the family had been planning to raise a $200-$400 million through equity and debt offering for the company on the NYSE (New York Stock Exchange), in aim to finance major investments because of the increasing competition from international beer companies
Words: 1038 - Pages: 5
$20/share x (1+6%)=20*1.06 =$21.20 expected stock price in 1 year. Dividend in 1 year (D1)= $1.00*1.06=$1.06 k=(D1/P0) + g =(1.06/20) + .06 =.113 Required rate of return is 11.3% . Firm value = FCF1/(WACC – g) = $150,000,000/(0.10 – 0.05) = $3,000,000,000. To find the value of an equity claim upon the company (share of stock), you must subtract out the market value of debt and preferred stock. This firm happens to be entirely equity funded, and this step is unnecessary.
Words: 266 - Pages: 2
Given the background of ACC and AirThread, do you think the acquisition is a good idea? Briefly explain your answer. Yes. First, American Cable Communication (ACC) and AirThread could help each other compete in the industry that was moving more and more bundled service offerings. Second, the acquisition could help both companies expand into the business market. Third, ACC was in a unique position to add value to AirThread’s operations because the acquisition could save AirThread more than 20% in
Words: 1388 - Pages: 6
