borrowing on WACC (traditional view)- traditional view of capital structure imply that the benefit of borrowing outweigh not borrowing, low cost of debt with its tax deductible advantage will effect the WACC to fall as borrowing increase. However, as the gearing increase because of bankruptcy risk and cost of equity rises, the WACC will increase as well, traditional view of the effect of borrowing on WACC shown on the graph- Cost of capital Ke WACC Minimum WACC
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rP os t 9-205-030 OCTOBER 5, 2004 MIHIR A. DESAI MASAKO EGAWA op yo The Continuing Transformation of Asahi Glass: Implementing EVA Toshiya Iwasaki, who founded our company in 1907, succeeded in Japan’s first commercial manufacturing of flat glass after numerous failures. He used to say, “Never take the easy way out, but confront difficulties.” He built the corporate culture to challenge the most difficult problems. — Shinya Ishizu, President and CEO Shinya Ishizu was in a
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0BAFI Business Finance Exam Solutions Semester 3 2010 Section B Q. 1 Explain in simple terms what you would need to know and how you would go about determining the interest and principal components of a loan repayment. To determine the interest and principal components of a loan repayment you would need to know the following: Present value (PV) – the amount outstanding on the loan, r – the discount or interest rate applicable to the loan, n – the number of payments to be made on the loan
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Calculate ratio debt/capital and equity/capital in market value terms 6 2.3 Calculate Beta (β) for Coleman Systems 8 2.4 Calculate Cost of Equity 10 2.5 Calculate the weighted average cost of capital for Coleman Systems 10 3. THE WACC AND PROJECT VALUES FOR DIFFERENT DEBT – EQUITY RATIOS AND THE OPTIMAL CAPITAL STRUCTURE FOR THE PROJECT 11 3.1 Case 1: No bankruptcy risk without tax 11 3.2 Case 2: No bankruptcy risk with tax 13 3.3 Case 3: With bankruptcy risk
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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 tax. This method is applied for Marriott as the whole corporation and for each of its three lines of business. WACC is calculated based on its financial data of 1987
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Week 6 project Identify and evaluate sources of debt financing A company's debt, liabilities and risk are very important factors in understanding the company. Boeing Company's total debt has increased over the past five years. The company reported a five-year low of $7.512 billion in 2008 and a five-year high in 2009 at $12.924 billion. The company's 2011 reported total debt of $12.371 billion is an increase of 50.55% over 2007. Debt Ratios 3. Total Debt to Total Assets Ratio = Total Debt /
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Deutsche Bank Securities PROBLEMÁTICA Se analiza una operación del Banco con ICL, de alto riesgo debido al alto nivel de apalancamiento de la empresa. La problemática de este caso versa en que la Vicepresidenta de “Deutshe Bank Securities” tiene que identificar la estructura óptima de capital para medir la viabilidad de la operación con ICL. . ANTECEDENTES ICL cliente de Deutsche Bank Securities se pone en contacto con la vicepresidenta Maria Ober para solicitarle un crédito con el
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Hansson Private LabelHansson Private LabelHansson Private 1. How would you describe HPL and its position within the private label personal care industry? HPL is a mid-sized private label manufacturer of personal care goods. In 1992, the company acquired production assets from Simons Health and Beauty Products, and through increased efficiency had enjoyed growth within the sector. The company’s production is estimated to account for about 28% of the $4 billion sold in their product category, generating
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2. Cost of capital of Marriott Cost of Capital Marriott dapat dihitung dengan perhitungan WACC, yaitu: WACC=(1-t)*Rd*Wd + Re*We Re, atau cost of equity dapat dihitung dengan rumus : CAPM=Rf+b(Rm-Rf) Rf atau risk free rate-nya dapat kami ambil dari exhibit 4 untuk long-term US Government Bond untuk tahun 1987 sebesar -2.69% (karena kami melakukan perhitungan untuk perusahaan Marriott, dengan asumsi untuk jangka panjang, maka kami menggunakan rate yang long-term) Untuk Market Portfolio
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function is Rate (5, -65000000, 115036070.66) and the MIRR is 12.094%. The MIRR function can also be utilized, which focuses on the FCF amounts, the initial outlay, the finance rate, and the re-invest rate. Since there is no re-invest rate, Home Depot’s WACC is utilized twice. Therefore, the function reads MIRR (-65000000, 17225000, 30550000, 23725000, 4225000, 0.08, 0.08) and the result is 12.094%. Home Depot can utilize PV= $115,036,070.66 / (1 + 0.12094)^5 to verify its calculations, which equals its
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