Answer to Essay Question #1: Idiosyncratic risk is a firm-specific risk that affects the price change of a security. It is also known as unsystematic risk. This risk is unique to the specific security and affects a single asset or small group of assets. In contrast to systematic risk, which is the market risk that affects the larger number of assets. Unsystematic risk of a portfolio can be brought down to zero through diversification whereas systematic risk cannot be diversified. This can be further
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Assumptions Used Cash Flow Vulcan And Semi Automatic Finance Essay Delloyd Engineering Sdn Bhd (“Delloyd”) specializes in the production of precision metal castings that are components used in the automotive industry. The company is considering automating part of the production process by considering the purchase of the Vulcan Mold Maker, an automated molding machine. The company has proposed to allocate RM 1 Million towards investing into the new molding-machine proposal, and will make a decision
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utilize a Weighted Average Cost of Capital (WACC) which distinguishes rates for the three major sources of funding; issuing debt, preferred shares, and equity. WACC is a model, and like all models includes its own set of assumptions that can distort the results. Calculating the cost of debt and preferred shares is typically quite straightforward with market rates readily available. The issue lies in calculating the cost of equity, a key determinant of WACC, where there are some large discrepancies
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Corporate Finance Basics Topics 1) 2) 3) 4) 5) 6) Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working Capital Management Financial Statement Analysis Capital Budgeting Introduction The Capital Budgeting Process is the process of identifying and evaluating capital projects, i.e., projects where the cash flow to the firm will be received over a period longer than a year. Capital budgeting usually involves the calculation of each project’s future accounting
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INVESTMENT ANALYSIS AF335: Investments Table of Contents 1. Introduction…………………………………………………………………………....3 2. Equity Analysis………………………………………………………………………..3 3. Recommendation……………………………………………………………………....6 4. JLG Equity Analysis Template………………………………………………………7 5. Value Line Report……………………………………………………………………12 INTRODUCTION PepsiCo is a world leader in convenient snacks, foods, and beverages, with revenues of more than $39 billion and over 185,000 employees. PepsiCo owns some of the world's
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Cost of debt: - Cost of debt is the effective interest rate that a company pays on its debt. Cost of debt is usually calculated after the interest expenses are deducted Cost of debt = Cost of Debt before tax (i.e. Interest rate) * (1-Tax Rate) WACC: Weighted average cost of capital is one of the measures to calculate the cost of capital of the firm. Weighted Average Cost of Capital is the minimum return a firm must earn on existing assets to keep its stock price constant and satisfy its creditors
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that Statement c would increase cash, if the firm receives a tax refund for taxes paid in a prior year. 3-9 Tax rate 35% WACC 9% Investor-supplied operating capital $15,000,000 Sales $22,500,000 Operating costs (including depreciation) 18,000,000 EBIT $ 4,500,000 EVA = (EBIT)(1 – T) − (Operating Capital)(WACC) = $4,500,000(0.65) – ($15,000,000)(0.09) = $2,925,000 − $1,350,000 = $1,575,000. 3-10 a. From the statement
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Boeing 777 Aviones para transportar entre 100 y 500 pasajeros. Frank Shrontz (CEO), misión de aumentar rentabilidad 12% actual. Octubre 1990, lanzamiento boeing 777, capacidad 350-390 pasajeros, contaban con orden de pedido de United Airlines. Pesimistas Señalaban que Airbus y McDonell ya habían anunciado existencia de aviones para este nicho y contaban con pedidos, generando disminución de precios. Estimaban gastos de I&D por USD 4-5 mil MM, superando el doble de B757 y B767. Invasión
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Capital | | $30.20 | | | | Free Cash Flow ($ millions) | | $34.96 | b) | | | FCFN | = | FCFN-1 x (1 + g) | FCF2012 | = | FCF2011 x (1 + g) | g | = | 6% | WACC | | 11% | Value of FirmLAST YEAR | = | FCFLAST YEAR (1 + g) | | | WACC - g | Horizon Value, V0-2011 | = | FCF2011 x (1 + g) | | | WACC - g | | = | $34.96 x (1+ 0.6) | | | 11% - 6% | Horizon Value in 2011 | = | $741.152 | c) | | | Add: Free Cash Flow in 2011 | | $34.96 | Value of operations
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RightNow case study 1. a. How has the company been financed up until the time of the case (2003)? Entrepreneur’s own money: In 1997, Mr. Gianforte founded RightNow with $5000 of his own money. VCs: In December 1999, RightNow closed a $16.4 million round, led by Greylock summit partners also participated. In December 2000, RightNow closed a $16 million Series b round, led by summit partners. b. What is the firm’s business model? RightNow was an application service provider. The
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