The Capital Structure of Nicci’s Pizza Palace September 13, 2011 The Capital Structure of Nicci’s Pizza Palace A company is funded by debt, equity, or retained earnings. The mixture of debt and equity is the company’s capital structure. There are four factors that influence capital structure; business risk, tax position, financial flexibility, managers, growth rate, and market conditions. Management’s decisions concerning capital structure should be geared toward maximizing the intrinsic value
Words: 1819 - Pages: 8
corporate tax rate is 40%. Determine the weighted average cost of capital? QUESTION 2: Equity Unlimited (EU) an all equity firm expects EBIT of $1,000,000 next year, after that it will decline at 2.5% per annum. The corporate tax rate is 40%, and cost of unlevered equity is 10%. EU is considering replacing some of the equity with perpetual debt. It has been determined that risk of bankruptcy is a function of amount of debt. PV of bankruptcy related costs will be $2,000,000. EU is considering
Words: 773 - Pages: 4
creates rather than merely reporting on the profit. The case takes place at the end of 2009. Performance Measurement Metrics Comparison NET PROFIT | ECONOMIC EARNINGS (EVA) | Suitable for companies with more intangible assets | Suitable for capital-intensive companies | Benefits the senior officers in MarineCorp and its subsidiaries due to profit-based performance evaluations | Benefits SURIA Group’s BoD (and shareholders in general) in pursuing VBM | Simpler to understand | A little bit
Words: 603 - Pages: 3
in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted-cash-flow (DCF) approach and reviews other methods of valuation, such as market multiples of peer firms, book value, liquidation value, replacement cost, market value, and comparable transaction multiples. Discounted-Cash-Flow Method Overview tC The DCF approach in an M&A setting attempts to determine the enterprise value or value of the company, by computing the present value of cash flows
Words: 9453 - Pages: 38
financially better off if the firms used some debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firm’s investment banker the following estimated costs of debt for the firm at different capital structures: ------------------------------------------------- ------------------------------------------------- % Financed With Debt rd ------------------------------------------------- 0%
Words: 3189 - Pages: 13
closer, while the working capital investment becomes lower with a lower customer credit risk. Financial forecast: The business plan has been developed looking at an exhaustive market analysis. Forecast data are reliable; they refer to the first five years. The target is to open 80 franchising shops within five years. Indeed, is that the optimal minimum number of shops in order to achieve the optimal minimal production output. The questions: 1) Which is the fair cost of capital for the company? 2) Which
Words: 3191 - Pages: 13
share (EPS). EVA is the calculation of what profits remain after the costs of a company's capital - both debt and equity - are deducted from operating profit. The idea is simple but rigorous: true profit should account for the cost of capital. To understand the difference between EVA and its older cousin, net income, let's use an example based on a hypothetical company, Ray's House of Crockery. Ray's earned $100,000 on a capital base of $1 million thanks to big sales of stew pots. Traditional accounting
Words: 851 - Pages: 4
Limited (SNL) and Joyce Corporation Limited (JYC). Those firms are rated by their market value of share capital. JBH and MYR both have market capital over $1 billion which are at the top of this industry. KMD and TRS are from the middle section which have market capital about $0.6 billion and $0.25 billion. The two bottom companies SNL and JYC are with $78 million and $14 million market capital respectively. This report, will firstly explain why do we use D/E ratio as a firm leverage, followed by
Words: 3497 - Pages: 14
today’s increasingly global marketplace, many investment projects, corporate acquisitions and mergers have important international components. The importance of cross-border valuation methods have been underscored by trends toward the relaxation of capital controls, European economic integration, and, since the early 1990s, the opening and growth of Eastern European, Russian, Asian and Latin American markets. Cross-border acquisitions have been a particularly prevalent form of investment since 1980
Words: 11146 - Pages: 45
1 2 How does Marriott use its estimate of its cost of capital? Does it make sense? 3 3 What is the WACC for Marriott Corporation? 3 3.1 Risk free rate? Market risk premium? 3 3.2 Cost of debt? 4 4 What type of investments would you value using Marriott´s WACC? 6 5 If Marriott used a single corporate hurdle rate for evaluating investment in each of its lines of business, what would happen to the company over time? 7 6 What is the cost of capital for the lodging and restaurants divisions of Marriott
Words: 2477 - Pages: 10
