Mortensen’s cost of capital were used for; Asset appraisals for both capital budgeting and financial accounting, Performance Assessments, M&A Proposals & Stock Repurchase Decisions. In addition to these areas being used in these estimates Mortensen also used at the corporate level and each business unit level (Exploration & Marketing (“E&P”), Refining & Marketing (“R&M”) as well as Petrochemicals (“Petro”)). These uses affect different areas of the firm by changing various parts of the Weighted Average
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after 2011. The weighted average cost of capital is 11%. a. If operating capital as of 12/31/2010 is $502.2 million, what is the free cash flow for 12/31/2011? Computation of the Free Cash Flow NOWC= ($5.60 + $56.20 + $112.40) NOWC = $174.20 Net Plant and Equipment= ($11.20 + $28.10) Net Plant and Equipment= $39.30 Operating Capital= $174.20 - $39.30 Operating Capital= $134.90 Total Operating Capital=$134.90 + 397.50 Total Operating Capital=$532.40 Change
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104.11 Open 102.84 Vol/Avg 68.26M/64.08M Mkt cap 601.11B P/E 16.02 Div/yield 0.47/1.83 EPS 6.43 Shares 5.87B Beta 0.89 Inst. Own 63% Q3 (Sep ’14) 2014 Net profit margin 20.10% 21.61% Return on average assets 14.95% 18.01% Return on average equity 29.22% 33.61% | | | Info extracted on 23rd Oct 2014 from https://www.google.com/finance?q=NASDAQ%3AAAPL&ei=UHpIVKihNsKwkQWr3IGYAw Information on Debt Morningstar Credit Rating AA- |NAME
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Nike Inc. Case 1. What is the WACC and why is it important to estimate a firm’s cost of capital? WACC is weighted average cost of capital, which is the expected rate of return on average from all the company’s existing debts and securities. It takes into account all different types of financing in the company’s capital structure. The reason it is important to estimate WACC is because it measures what it costs the firm to take on a project based on its current Debt and Equity mix. When the firm
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operations and used over $2 billion for capital expenditures, much of it on new stores and the purchase of worksite health centers. Procter & Gamble generated $15.8 billion. P&G made relatively small capital expenditures (abut $3 billion) and returned the lion’s share (over $12 billion) to shareholders as dividends or through stock repurchases. Apple generated about $9.6 billion (up from $5.5 billion the previous year) but made relatively small capital expenditures, acquisitions, or distributions
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value, as the price per share should increase. 2. How does Marriott use its estimates of its cost of capitol? Does it make sense? • Marriot uses of cost of capital as the hurdle rate to discount future cash flows for the investment projects of the firm’s three divisions, and then to calculate the net present value and net present value over cost to decide for the profit rate. Seeing as how cost of projects stays the same, net present value and hurdle rates are used as variables to decide
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to reduce the power cost by 15% to 20% and eliminate graphite cost. American ensured to realize laminate technology and make it available to the Collinsville plant. The installation of laminate was scheduled for December 1980 and would charge Dixon $2.5 million, one-time cost depreciated over a period of 10 years. Dixon planned to fund the $12 million purchase price entirely with debt capital. This funding plan would temporarily increase Dixon’s book debt-to-total capital ratio to approximately
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Genentech’s shares: * 1 The merger will lead to formation of the world’s largest biotechnology company. * 2 Value of total benefit from synergies will be $5billion. This will be a result of M&D, manufacturing, development and administrative costs reduction. * 3 Complete ownership will give the company complete access to technology and R&D projects. * 3 It will also give the company access to its cash amounting to $9.5billion, which can also be used to make payment for debt raised
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Problem: Pioneer Petroleum Corporation (PPC) has two major problems that are interfering with the goal of the firm to maximize shareholder wealth. The first is that PPC has been calculating their weighted average cost of capital incorrectly, by incorrectly calculating their after tax cost of debt and their cost of equity. This miscalculation has subjected PPC to more risk and has hurt the company’s ability to make appropriate investment decisions. This has also led PPC to accepting investment decisions
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of the firm [chap. 1 & lecture] 2. valuation concepts and processes [chap. 3, 5, 8, 9, 29] 3. capital budgeting estimation and decision methods [chap.6, 7] 4. debt, equity and lease financing issues [chap. 14, 20, 21] 5. risk defined and measured in a CAPM setting [chap. 10, 11] 6. variations in the calculation of cost of capital [chap. 13, 18] 7. capital structure and dividend policy decisions [chap. 15, 16, 17, 19] Suggested Other Courses: FIN 644 concerns
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