Average Cost of Capital (WACC) formula to evaluate required Cost of Capital estimate. 2. Briefly explain the meaning of the following concepts: cost of capital, WACC, and CAPM. Cost of Capital: the minimum acceptable rate of return for new investments in the corporation. The opportunity cost of investing. WACC: Weighted Average Cost of Capital, a calculation of company’s cost of capital, which is seemed as composite cost of debt and equity. Every category of capital in WACC is proportionally weighted
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for each period varies. Since each period has different standard error, it will be better to take the weighted average of the data, then EMRP is approximately 5.9% or lets say 6.0%. Comparing to the EMRP that Midland would use in the calculation of WACC which is 5%, the historical data reflects a higher EMRP. But from the market risk premium survey results, we see that finance professors, CFOs and fund managers advocate a lower rate on risk premium. Because these people have better understanding in
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that the earnings, earnings per share, and earnings growth are misleading measures of corporate performance, and the best practical periodic performance measure is economic value-added. The formula to measure EVA is: EVA= NOPAT – (invested Capital x WACC). EVA is a dollar amount and if that amount is positive, the company can earn more net operating profit after tax than the cost of capital used to generate the profit. There are a number of advantages that should be addressed of using EVA as a measure
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Quiz 11 Cost of Capital 1(11-2) NPV and IRR F I Answer: b EASY [i]. A basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted. a. True b. False 2(11-2) Mutually exclusive projects F I Answer: b EASY [ii]. Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method puts the other one first. In theory, such conflicts should be resolved in
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Marriott Case Study In this summary, we are going to discuss Marriott’s strategy points for maintaining its status as a premier growth company, weighted average cost of capital (WACC), divisional hurdle rates, and justification of numbers used in calculations. Marriott’s strategic plan to maintain its status as a premier growth company can be broken into four distinct areas: managing (as opposed to owning) hotel assets, choosing investments that increase shareholder value, optimizing the use
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CASE 14: NIKE, INC.: COST OF CAPITAL What is WACC and why it is important to estimate a firm’s cost of capital? Do you agree with Joanna Cohan’s WACC calculation? What is WACC and why it is important? Do you agree with Joanna Cohan’s WACC calculation? WACC (Weighted average cost of capital) is the minimum return that a company must earn on existing asset base on satisfy its creditors, owners and other providers of capital WACC is important to estimate a firm’s cost of capital because: The
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13/3/2013 Nike, Inc. Cost of Capital 1 Discussion Questions • What is the WACC and why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers? • Do you agree with Joanna Cohen’s WACC calculation? Why or why not? If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating
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Business Review November, 2013 Jorge Luis Mejía Fuentes A00465945 Section IV (Page 1 of 48) 1 AGENDA 1. Company Approach. 2. SWOT Analysis. 3. Market Research. 4. Financial Information. 5. Ad hoc Analysis. 6. Recommendations. 2 AGENDA 1. Company Approach. 2. SWOT Analysis. 3. Market Research. 4. Financial Information. 5. Ad hoc Analysis. 6. Recommendations. 3 Company Approach Palmex is a Mexican coconut water Company. Palmex CEO, Ximena Navarrete mission: Offer healthy, tasty
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| Marriott Corporation | Case Study – Write Up | Hitesh Gupta & Swapnil Deshpande 2-5-2015 | Q1 what is overall WACC for Marriott Corporation? Ans :- For calculating WACC we need cost of equity for the firm(ke) ,cost of debt(kd) capital structure of the firm and tax rate (t). To calculate cost of debt we chose the long term interest rate on U.S. government bond and added debt rate premium (From Table A debt premium = 1.3%) for Marriott Corporation to it. We chose long term US
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Norberto Ramos 9/7/15 Advanced Corporate Finance Professor Muhammad Chishty Case 15: Nike, Inc.: Cost of Capitol Worked with Xavier Robles As many people know, Nike is a sporting brand company with a large variety of products from clothing, shoes, to tech gear that is able to read your health when in use . But for this case at hand, on July 5th, 2001 Kimi Ford from NorthPoint Group, looked over analyst write-ups. Ford, and NorthPoint Group, invested in Fortune 500 companies with a central
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