then submit the exam on the course website just as you would a normal homework assignment. Question 1: (Cost of Capital) 8 points Pine Tree Farms Corporation (PTFC) has a target capital structure of 20% debt, 10% preferred stock, and 70% common equity. Currently PTFC has a capital structure of 70% debt, 10% preferred stock, and 80% common stock. The after tax cost of debt is 4.5%. The preferred stock has a par value of $100 per share, a $5 per share dividend, and a market price
Words: 894 - Pages: 4
the case study. Your tasks are as follows. 1. Estimate the value of FVC to RSE using the discounted cash flow (DCF) valuation method discussed in class. Your estimates should include: expected future free cash flows to the firm (FFCF), weighted average cost of capital (WACC), terminal value, enterprise value, value of non-operating assets, firm value, equity value, and share value. Assume that the terminal growth rate of about 6% is appropriate but do a sensitivity analysis to the changes in the terminal
Words: 863 - Pages: 4
Midland Energy Resources, Inc.: Cost of Capital Executive Summary Midland Energy Resources, Inc. is a global energy company comprised of three different operations – oil and gas exploration (E&P), refining and marketing (R&M), and petrochemicals. E&P is Midland’s most profitable business, and midland anticipated continued heavy investment in acquisitions of promising properties, in development of its proved undeveloped reserves, and in expanding production. Midland wanted to boost
Words: 1689 - Pages: 7
Date: January 16, 2016 Name: Professor Finding the weighted average cost of capital for Amazon.com Ticker: AMNZ Amazon is an American publically traded company and is one of the largest retailing firms headquartered in Seattle, Washington. The reason why I chose this firm is that it has equity, debt and lease payments in its capital structure. The following are the calculations performed in order to determine the WACC for the firm. Cost of debt According to Moody’s report for year 2014, the
Words: 944 - Pages: 4
that changed the business market for Guillermo. First, a competitor moved in with high-tech equipment that could mimic Guillermo’s high quality work at a lower cost. Additionally, the popularity of Sonora rose as did their population; this caused labor costs to sky rocket (University of Phoenix, 2010). With a large competitor and huge labor costs, Guillermo has to find a way to survive in this new environment. To remain in business in this new market Guillermo has to decide on new course of action;
Words: 2103 - Pages: 9
| Goodwill Impairment | 65% | 21 | 27 | 130 | 70% | 24 | 24 | 133 | 75% | 28 | 20 | 137 | 80% | 32 | 16 | 141 | 85% | 37 | 11 | 146 | Discount Rate Assumptions Appraisal Professionals LLC, used the Capital Asset Pricing Model to compute a Weighted Average Cost of Capital for discounting the cash flows of MMN Builders. In order to do this, the appraisers took into a consideration a lot of difference assumptions that our team would like further clarification on. One of the assumptions
Words: 954 - Pages: 4
HOMEWORK ASSIGNMENT PROBLEM BASED ON CHAPTER 15 – WACC AND THE HAMADA FORMULA Bickley Engineering Company has a capital structure of 30% Debt and 70% Equity. Its current Beta is 1.3, and its Market Risk Premium is 7.5% Points. The current Risk Free Rate is 3.5%. Bickley’s marginal tax rate is 40%. What is the Unlevered Beta of Bickley? Bickley’s management would like to change its capital structure to 15% Debt and 85% equity by retiring its bonds yielding 8%. The remaining long term debt will be
Words: 276 - Pages: 2
HOMEWORK ASSIGNMENT PROBLEM BASED ON CHAPTER 15 – WACC AND THE HAMADA FORMULA Bickley Engineering Company has a capital structure of 30% Debt and 70% Equity. Its current Beta is 1.3, and its Market Risk Premium is 7.5% Points. The current Risk Free Rate is 3.5%. Bickley’s marginal tax rate is 40%. What is the Unlevered Beta of Bickley? Bickley’s management would like to change its capital structure to 15% Debt and 85% equity by retiring its bonds yielding 8%. The remaining long term debt will
Words: 278 - Pages: 2
questions are compulsory and carry equal marks. Section-A Ques. 1 A firm’s sales, variable costs and fixed cost mount to Rs.70,00,000, Rs.42,00,000 and Rs.6,00,000 respectively. It has borrowed Rs.45,00,000 at 9 percent and its equity capital totals Rs.55,00,000. a)What is the firm’s ROI? b)Does it have favourable financial leverage? c)If the firm belongs to an industry whose average asset turnover is 3, does it have a high or low asset leverage? d)What are the operating, financial
Words: 756 - Pages: 4
project would be worth doing by determining if they will add value to Star. Thus, the projects that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Words: 1747 - Pages: 7
