single owner has the potential of being liable for their losses including their personal assets. In an LLC, each partner that is involved has a limited liability in the company that is backed solely to their investment. One disadvantage to an LLC is the cost and tax regulations that this type of partnership is subjected to. The next form that
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tasks for the student are to resolve the debate, estimate weighted average costs of capital (WACCs) for the two business segments, and respond to the raider. Suggestions for complementary cases: “Nike Inc.” (case 13) gives an introductory exercise in the estimation of the cost of capital. “Coke vs. Pepsi, 2001” (case 14) offers the estimation of WACCs for two competitors and opportunities to reflect upon how business risk drives cost of capital. “Phon-Tech Corp.” (UVA-F-1161) is a simplified version
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of this change across the board. The table 5.1 contains various cost of debts based on various capital structures. In this table we estimate value of operations, value of debt, value of equity, stock price, net income and earnings per share of the firm for various capital structures. Our objective here is to identify the optimum capital structure for the firm. {draw:frame} Table 5.1 – Cost of Debt for various Capital Structures We used the Hamada equation to estimate the impact of
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Marriott Case Study 1)What is the weighted average cost of capital for Marriott? The weighted average cost of capital for Marriott is 11.64%. .4(cost of equity) + .6(cost of debt)(1- tax) Tax = Income tax/Income before tax = 175.9/398.9 = 44% Cost of debt = .5(.0895) + .4(.0872) + .25(.069) + .5(.011) + .4(.014) +.25(.018) = 11.25% B = 1.1 when d/e = .41 target d/e is .6 so.. B(a) = B(e) / (1 + (1-tax) D/E) = 1.11 / (1+.56(2499/3596)) = .80 B = .8 * (1+.56(5394/3596)) = 1.47
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Problem Sheet # 9 Unit 9 – Cost of Capital 1. What is the company’s cost of equity capital if CCC’s common stock has a beta of 1.2, a risk-free rate of 4.5 percent and the expected return on the market is 13 percent? 2. The total market value for Disney was $60M at the start of this year. During the year Disney plans to raise and invest $30M in new projects. The company’s present market value capital structure, shown below is considered to be optimal. Assume that there is no short-term debt
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Marriott Corporation: The Cost of Capital Executive Summary J. Willard Marriott started Marriott Corporation in 1927 with a root beer stand, expanding it into a leading lodging and food service company with sales of over $6 billion by 1987. At the time, Marriott had three main lines of business, lodging, contract services and restaurants, with lodging generating about 51% of company’s profits. The four key elements of Marriott’s financial strategy were managing hotel assets rather than owning
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innovated the workforces of Boeing company. Basically, Boeing is diversified into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. These two units are supported by three small units which are Boeing Capital Corporation, Share Services Group and Boeing Engineering, Operations & Technology. Each unit has its own duties. BOEING BUSINESS UNITS Boeing Commercial Airplanes Boeing Commercial Airplanes is being the leader in
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2. In this case Marriott used Weighted Average Cost of Capital to determine to take on certain investments. Using the WACC it does make sense in this instance. Marriott has 3 different divisions they are in: lodging, restaurants, and contract services. For each of these services they calculated each WACC individually to give an accurate account of each individual divisions risk level. They use hurdle rates for each division to see which projects to take on and if they provide enough return for
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possibility that the company will need additional funds to develop or acquire new technologies in the near future mean that Polaroid must maintain a strong enough balance sheet to provide a cushion for future financing needs. Polaroid’s current capital structure should be improved to ensure a minimum BBB rating and to avoid market perceptions of the company as a cash cow with limited growth opportunities. The company should reverse direction and emphasize growth
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Jeremy Masem FIN 685 10/21/12 Cost of Capital paper The relationship between the method and assumptions made with respect to placing a value on a financial instrument and determining the capital cost for each of these instruments is intertwined. Similar factors are involved in both calculations. Issues surrounding estimating the future cost of capital and placing a value on a financial instrument are similar too. A WACC formula makes it clear that the problem of discount rate determination
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