Best Practices in Estimating the Cost of Capital: Survey and Synthesis Robert F. Bruner‚ Kenneth M. Eades‚ Robert S. Harris‚ and Robert C. Higgins This paper pn ^ents ihns‚ Wn Itujjlini; finunaal advtsi-i’s. lUic -M-ven‚ best selling texlho(>k.\ and trade hooks. The re.sulls show close aligninvn! ainuu-^:‚ all lh< M S‚ y’i’jps an ihc use of common theoreliva! frameworks and on many aspects of estimation. We Jin a ’’an.>( •arunhtn. however‚ for the joint choices oflhe nsk-free rate. heia.
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What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 1.1 The definition of WACC Weighted average cost of capital(WACC)‚ is a weighted-computational method of analyzing the cost of capital based on the whole capital structure of a firm. The result of WACC is the rate a firm use to monitor the application of the current assets because it represents the return the firm MUST get. For example this rate could
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Number of pages: 12 Daniel Miravet Campos Part 1. Executive summary This article is fundamentally based on the exposition of a new method to calculate the cost of capital for a company (MCPM)‚ to meet the inefficiencies of the current one (CAPM). In valuing any investment project or corporate acquisition‚ executives of a company must compare the cost that operation would require with its expected future cash flows. To do so‚ they must discount those future cash flows with a specific rate
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celebration the slaves in Western Jamaica rose up in rebellion. This revolt is known to many though maybe varying in names it is none the less the same revolt in 1831. Popularly called the Christmas Uprising- due to the time of year it occurred‚ the Sam Sharpe Rebellion- named after the main instigator of the 1831 revolt‚ the Baptist War- they were thought to be the one who influenced the Africans into starting the revolt ;or rather simply the Great Jamaican Slave Revolt of 1831-32 Though many
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term debt‚ because short term debt is considered as part of working capital. - Error in value of equity JC used the book value of $3‚494.50. We should use market value (current stock)‚ which is more accurate. - Error in CAPM Calculations JC considered 20-year US Treasury bonds as risk free‚ which is not consistent with the company’s cash flow duration
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Capital Asset Pricing Model (CAPM) is the best choice. This model offers the best amount detail while maintaining the simplicity needed for a model outlining investment decisions in CMG. The Pricing Models There are three pricing models to discuss when evaluating CMG: dividend growth‚ CAPM‚ and the Arbitrage Pricing Theory (APT). Each of these models has both advantages and disadvantages‚ easily tailoring one model to different situations. However‚ the CAPM is best suited for this
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Bodie‚ Kane‚ Marcus‚ Perrakis and Ryan‚ Chapter 7 Answers to Selected Problems 1. What is the beta of a portfolio with E[rp ] = 18 percent‚ if rf = 6 percent and E[rM ] = 14 percent? Answer: Using the CAPM equilibrium condition‚ E[rp ] = rf + βp E[rM ] − rf ⇒ βp = E[rp ] − rf .18 − .06 = 1.5 . = E[rM ] − rf .14 − .06 2. The market price of a security is $50. Its expected return is 14 percent. The risk-free rate is 6 percent and the market risk premium is 8.5 percent. What will be the market
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TO: VEFA TARHAN‚ SPECIAL TOPICS IN FINANCE FROM: MAHMUT MACIT‚ AHMET ARDA ATIK‚ CAN KORKMAZ DATE: NOVEMBER 4‚ 2014 CASE: PIONEER PETROLEUM CORPORATION Overview of the Company Pioneer Petroleum Corporation established in 1924 and operating in oil refining‚ pipeline transportation‚ and industrial chemical fields. Company uses weighted-average cost of capital (WACC) as a discount rate to discount future cash flows that generate from possible projects. According to net present values of these possible
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Kd(1-t) x D/(D+E) 7.17(1-.38) x 1‚296.6/(12‚724.035) 4.44% x 10.2% = .4529% We agreed with Ms. Cohen’s results of the CAPM model and used them to calculate the cost of equity. The geometric mean for MRP equaled 5.9%‚ the average beta for Nike since 1996 was .8‚ and the 10 year treasury bond for the risk free rate was 5.39%. Using CAPM‚ the cost of equity would be as follows: Ke = Rf + Beta(MRP) Ke
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MPF753 T3 2014 – Assignment Part 2 Due by: 4:59PM Monday‚ 12th Jan 2015 Q1. Pick any three companies with shares currently listed on the ASX that have been trading for at least five years. Go to DatAnalysis (accessible via Deakin Library website)
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