Weighted Average Cost Of Capital

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    Financial Management Weighted Average Cost of Capital 1 Weighted Average Cost of Capital (WACC) • This lecture answers the following questions: - What is the “opportunity” cost of funds for a firm, and thus the firm’s discount rate used in NPV calculations? - What is a firm’s Asset Beta & how do we lever Asset Betas and unlever Equity Betas? - Link to previous lectures - No longer use a “given” discount rate. We will calculate the correct discount rate for our NPV calculations. WACC - 1

    Words: 1622 - Pages: 7

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    Midland Case Study

    was Midland’s largest business, and Petrochemical was Midland’s smallest yet still substantial business. In 2007, Midland’s financial strategy will mainly focuses on four aspects: 1) Fund Overseas Growth; 2) Value-creating Investments; 3) Optimize Capital Structure; 4) Repurchase undervalued stocks. Fund Overseas Growth: Due to the exploited domestic resources in the domestic market, overseas investment will be the main sources for economic growth in Midland as a form of specialized financial and contractual

    Words: 1513 - Pages: 7

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    Finance

    asset was purchased three years ago for $100,000 and can be sold for $40,000 today. The asset has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gain. (a) Compute recaptured depreciation and capital gain (loss), if any. (b) Find the firm’s tax liability. |(a) Book Value ’ 100,000 (1 – 0.20 – 0.32 – 0.19) ’ $29,000 | |Recaptured depreciation

    Words: 653 - Pages: 3

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    Heinz: Estimating the Cost of Capital

    H.J. Heinz Company Case: Cost of Capital in Times of Uncertainty Group 10 Alan Ho 20349978 Saraniya Paramanathan 20332829 Christopher Abeleda 20335744 Nathanael Cheung 20345672 Reuban Nadesan 20346511 To: Board of Directors Committee, H.J. Heinz Company From: Group 10 Consulting Date: July 7, 2011 ------------------------------------------------- Subject: Weighted Average Cost of Capital Recommendation ------------------------------------------------- Heinz has

    Words: 2326 - Pages: 10

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    Cal Wacc from Financial Statement

    How to calculate the Weighted Average Cost of Capital (WACC) from financial statement By waccawacca, eHow Member User-Submitted Article A firm's WACC (Weighted Average Cost of Capital) reflects the average 'cost' for a firm to raise capital. The WACC is one of the most fundamental economic measures of a company, as all typical investment projects undertaken by the firm should earn a return AT LEAST as high as the firm's WACC. Otherwise, the firm is destroying value. This eHow will summarize the

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    Finance 100

    Identify the components of a stock’s realized return. A realized return is the amount of actual gains that is made on the value of a portfolio over a specific evaluation period. This takes into consideration any earnings generated by each of the assets contained in the portfolio, as well as any losses that were incurred as a result of a shift in the value of the individual assets. It is possible to identify the realized return associated with each asset that is held in the portfolio. Components

    Words: 1172 - Pages: 5

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    Capital Cost

    THE COST OF CAPITAL The investor-supplied items- debt, preferred stock, and common equity- are called capital components. Increases in assets must be financed by increases in these capital components. The cost of each component is called its component cost. For example, Allied can borrow money at 10%, so its component cost of debt is 10%. These costs are then combined to form a weighted average cost of capital, which is used in the capital budgeting process. rd interest rate on the firm’s

    Words: 431 - Pages: 2

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    Fin 571 Week 4 Dq

    Week Four Discussion Questions 1.What is the cost of capital? How do you calculate the cost of capital? Why is it important in capital budgeting decisions. (due by midnight on Thursday) Cost of capital is the required return or the opportunity cost for a project in order to increase the value of the firm in the market place. It helps managers evaluate if an investment is worthwhile by setting a benchmark for the minimum rate of return. Cost of capital may be used as the measuring road for adopting

    Words: 425 - Pages: 2

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    Ia8 Solution

    ACCT 7340 Fall 2013 Professor Lin Solution to Individual Assignment 8 (1) The cost of equity is calculated as follows. Whirlpool: ........................... IBM: ..................................... Target Stores: ...................... 3.5% + (2.27 x 5.0%) = 14.85% 3.5% + (0.78 x 5.0%) = 7.40% 3.5% + (1.20 x 5.0%) = 9.50% (2) We use the book value of the debt and the market value of the equity as the proxies for the intrinsic values of debt and equity, respectively. Whirlpool 2,597 46

    Words: 721 - Pages: 3

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    Midland Energy Case Analysis

    Midland Energy Resource Case Analysis 1. Describe Midland, its capital planning model and Janet Mortensen's role in the case. Midland Energy Resource, Inc. has three major divisions: Exploration & Production (E&P), Refining and Market (R&M), and Petrochemicals. E&P division provides the most profit for Midland. R&M is the largest division in Midland by revenue. Petrochemicals is the smallest division in Midland. Midland’s financial strategy in 2007 consisted of four principals:

    Words: 933 - Pages: 4

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