* PV(CF) = CF/(1+r)t AKA PV = FV/(1+r)t * NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C,r) = C/r requires cash flow to begin NEXT period. If begin now, then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C,r,t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C,r,g) = C/(r-g) C is initial cash flow, r is discount rate
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dividend, thereby it can use its retained earnings to invest more in profitable projects. This strategy means that Marriott are confident in its future performance. Marriott use the Weighted-Average-Cost-of Capital (WACC) method to measure the opportunity cost for investments. WACC = (1-t)rD(D/V) + rE(E/V) where D and E are the market values of the debt and equity respectively; rD is the pre-tax cost of debt; rE is the after-tax cost of equity; V is the firm value (V=E+D); and t is the corporate
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Berkshire Instruments Cost of Capital A1 Hansen, the newly appointed vice president of finance of Berkshire Instruments, was eager to talk to his investment banker about future financing for the firm. One of Al's first assignments was to determine the firm's cost of capital. In assessing the weights to use in computing the cost of capital, he examined the current balance sheet, presented in Figure 1. In their discussion, Al and his investment banker determined that the current mix in the
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CASE STUDY HOMEWORK CORPORATE FINANCE 1 The Situation: In 2010 a new company was created in order to enter into the food industry. They spent many months in studying the market, engineering the products and the commercial strategy, find out the production plants. At the end of 2010 the business plan is ready and the company has already participated to an exhibition where many potential customers said to be very interested to the project. The problem: A private equity institution gets in touch
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serve are different in terms of risk. In calculating the WACC for each segment, I did the following: Telecommunications Services Products and Systems WD 0.271 WD 0.092 WS 0.729 WS 0.908 RD 5.74 RD 7.47 RS 10.34 RS 11.99 Beta 1.04 Beta 1.34 RM-RF 5.5 RM-RF 5.5 RM 10.12 RF 10.12 RF 4.62 RF 4.62 1-T 0.60 1-T 0.60 WACC 8.47 WACC 11.30 I used the average beta of the Telecommunications Services Industry in calculating the WACC for the Telecommunications Services segment. For the
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Fonderia di Torino Case Introduction Fonderia di Torino was founded in 1912 by Benito Cerini. The company was created to produce castings for the armaments industry. In the 1920’s and 1930’s the company expanded into the automotive industry. Benito Cerini foresaw the future demand for precision metal casting and revamped the company to meet the demand. The company grew slowly but steadily. Fonderia di Torino’s specialization is the production of precision metal castings for the use in automotive
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Executive Summary In this valuation project, we calculated The Ford Company’s free cash flow for the next five years into 2019. Then we calculated the value of the firm by utilizing FCF and WACC (weighted cost of capital). Finally, we compared the stock price that we predicted to the stock price to the current stock price of 2015. Company Overview The Ford Motor Company, founded by Henry Ford, is an American automotive company with headquarters in Dearborn, Michigan and incorporated on July
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taxes, an increase in leverage (i.e., an increase in D/E ratio) will lead to a) Higher WACC b) Low WACC c) No change in WACC d) The information provided is not sufficient to chose any of the above questions Ans: C 3) According to M&M Theorem in the presence of corporate taxes an increase in leverage (i.e., an increase in D/E ratio) will lead to a) Higher WACC b) Low WACC c) No change in WACC d) The information provided is
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Road King Trucks Case Analysis 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
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และจากข้อมูลอัตราส่วนทางการเงินที่สืบค้นมาได้ (ภาพ 6) Blanka Dobrynin คาดว่าต้นทุนของตราสารหนี้อยู่ที่13% และ Susan Chandler จะต้องตรวจสอบสมมติฐานของข้อมูลในตลาดทุน (ภาพ 7) ผลกระทบต่อต้นทุนของเงินทุน Susan Chandler รู้ว่ามูลค่าของบริษัทจะเพิ่มขึ้นสูงสุดเมื่อ WACC ลดลงต่ำสุด เธอจึงต้องคาดการณ์ว่า WACC จะเป็นเท่าไหร่หลังจากบริษัทเปลี่ยนโครงสร้างเงินทุนครั้งนี้ เธอได้ประเมินต้นทุนของหนี้หลังจากเปลี่ยนโครงสร้างเงินทุน โดยอ้างอิงจากอัตราปัจจุบันของตลาดทุน (ภาพ 7) ต้นทุนของส่วนของผู้ถือหุ้นสามารถประมาณการด้วย CAPM ซึ่ง (ภาพ 7) แ
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