Subject: Memorandum- Cost of Capital and Capital Structure Date: I. Cost of Common Stock The cost of common stock estimated varied widely between the three methods used. Under the CAPM approach, UPS had the lowest cost because it has the lowest beta coefficient, according to Value Line. Conversely, AAWW had the highest cost of common stock because its beta coefficient is almost twice that of UPS. Under the DCF approach, UPS and AAWW were swapped with regard to having a higher cost
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The goal of all companies is to create value for the shareholder. But how is value measured? Wouldn't it be nice if there were a simple formula to figure out whether a company is creating wealth? A growing number of analysts and consultants think there is an answer. Like many economic formulas, the measure - economic value added (EVA) - is both intriguingly clever and maddeningly deceptive. Does EVA simplify the task of finding value-generating companies or does it just muddy the waters? What
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using FCFcap: Step 1: FCF_cap=EBIT(1-t)+depreciation+ amortization -Capex-change of NWC =NI+Interest(1-t) - Change of Net PPE - Change of NWC Step 2: WACC calculation: WACC=%Equity * Re + %Debt*Rd*(1-t) Re=Rf+beta*MRP=15.8% So, WACC= 65%*15.8%+35%*10%*(1-0.5)=12.03% Step 3: Multiply FCF with corresponding discount factors (1/(1+WACC)^n) PV(FCFcap)= 166.12 Step 4: Terminal value of equity = 116.2*10 – 117.1=1044.9 Terminal Enterprise value = equity value + debt value – cash = 1044
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industry data and average them to get the average asset data, which I think is more reasonable to explain the level of the risk for the ChampSport INC. Then I conduct the equity beta for ChampSport is 1.01. Finally, I got the 7.43% as the result of the WACC. (See Comparable Firm sheet) After that, I do the NPV analysis. When calculating the Operating Cash Flow, I decide to omit the expense of the research and development cost since it is the sunk cost and will not affect the future project and profit
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------------------------------------------------- Polaroid Corporation, 1996 ------------------------------------------------- Polaroid Corporation, 1996 Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Prof. Ragupathy M B FINANCE – II Submitted by: Nidhi Kanojia 2011PGP749 Section B Current Financial issues in raising capital Ralph Norwood has just recently been appointed treasurer of Polaroid. Faced with notes outstanding of $150 million which will mature
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Guillermo Furniture Store Analysis Fin571 Guillermo Furniture Store Analysis Guillermo Furniture Store (Guillermo) is a manufacturer of furniture located in Sonora, Mexico and is the largest industrial furniture manufacturer in the area. Guillermo has investment opportunities but must consider past and current choices. Guillermo Navallez, the owner of Guillermo’s Furniture store, has been experiencing a slowdown of business, primarily due to the increase in competition. Due to the changes
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The Weighted Average Cost of Capital Cost of Capital – the cost that a firm must pay for the capital it uses to finance new investments and investment projects. Capital comes from: 1) Debt 2) Preferred stock 3) Retained earnings 4) Common stock Alternatively: Cost of Capital to the firm is the equilibrium rate of return demanded by investors in the capital markets for securities in that risk class. So, it is the minimum rate of return required
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Accounting Application Project - Part Seven Desiree’ Pressley September 12, 2015 MBA620: Accounting for Decision Makers Summary of the major capital investments made by PepsiCo and The Coca Cola Company In 2014, purchases of investments for The Coca Cola Company were $17,800 million and proceeds from disposals of investments were $12,986 million. This activity resulted in a net cash outflow of $4,814 million during 2014. The purchases during the year ended December 31, 2014 include The
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Case Study – The Boeing 7E7 In early 2003, Boeing announced its “Dreamliner” plan to design and sell a new, “super-efficient” jet -- “7E7”. However, the overall market for aircrafts was negatively affected by several shock news: the United States went to war against Iraq, a deadly illness called SARS resulted in global travel warnings. These negative news made airline profits the worst seen in a generation. Michael Bair, the leader of the 7E7 project, announced that Boeing was making “excellent
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Weighted Average Cost of Capital (WACC)-In Class Weir Enterprises Balance Sheet is listed below. The preferred stock currently sells for $15 per share and pays a $1.50 dividend. There are one million common shares outstanding and the stock sells for $30 per share. The common stock has a beta of 1.3, the expected return on the market is 12 percent and the risk-free rate is 4 percent. The bonds pay an 8 percent coupon annually. The bonds have 10 years left to maturity and are currently priced
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