capital (WACC)? Choose one answer. | a. Long-term debt. | | | b. Accounts payable. | | | c. Retained earnings. | | | d. Common stock. | | | e. Preferred stock. | | Correct Marks for this submission: 1/1. Question 2 Marks: 1 For a typical firm‚ which of the following sequences is CORRECT? All rates are after taxes‚ and assume the firm operates at its target capital structure. Choose one answer. | a. re > rs > WACC > rd. | | | b. rs > re > rd > WACC. |
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BBB ‚ which results in a decrease in WACC from 11.47% to 9.95%. By doing this‚ Deluxe ’s WACC is minimized‚ yet the bond rating is still at investment –grade rating; plus‚ the firm will have a financial flexibility of $872 million‚ and an increase in its equity value per share by $35.34. This memo explains in detail the calculation of the current WACC‚ the current intrinsic equity value‚ the unused debt capacity at different ratings‚ and the recommended WACC as well as the estimated increase in
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describes that WACC can only measure investment of similar risk class and for that reason we don ’t think the way Marriott uses to estimate cost of capital makes sense since we believe that WACC and net present value of the project must be separately calculated for each part of the company and for each of their projects. 2. What is the weighted average cost of capital for Marriott Corporation? The WACC for Marriot Corp is 9.76%--See calculations bellow: In order to find the WACC for Marriot
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A company with low gearing is one that is mainly being funded or financed by share capital (equity) and reserves‚ whilst the one with a high gearing is mainly funded by loan capital. Now the question to address is which of the two (equity and debt) is cheaper to the company? The answer is that cost of debt is cheaper than cost of equity. This is because debt is less risky than equity and the tax advantage of debt over equity as discussed below: Risk: debt is less risky than equity because: • the
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market-determined variables in the sense that they are based on investors’ required returns. False 4. The before-tax cost of debt‚ which is lower than the after-tax cost‚ is used as the component cost of debt for purposes of developing the firm’s WACC. False 5. The cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt. False 6. The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends
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What is the nature of the investment that is under consideration and what are the sources of value (cost savings and revenue increases)? The investment proposed by Bob Prescott‚ an on-site longwood woodyard‚ would reduce operating costs by processing tree-length logs‚ as well as increase revenues by selling shortwood. Cost Savings: In 2006‚ Worldwide Paper’s Blue Ridge Mill had to purchase shortwood from competitor‚ Shenandoah Mill. The new woodyard would begin operations in 2008‚ thus
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present day calculation. In order to properly calculate the cost of debt for Worldwide Paper Company‚ we calculated a new weighted average cost of capital using current market and company data. The formula for weighted average cost of capital‚ or WACC‚ is (% of debt on the company’s balance sheet multiplied by the after-tax cost of debt) + (% of equity on the balance sheet multiplied by cost of equity). To determine percentages of the debt and equity on
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Patrick Belgica‚ Robie Escaño‚ Ergo Galang‚ Roberto Villanueva‚ Jill Borlong‚ Li (Michael) SPFINMAN / G05 Prof. Alan Jezrel Solomon‚ MBA 1. Determine the Weighted Average Cost of Capital (WACC) based on using retained earnings in the capital structure. In order to find the WACC‚ we need to find the cost of the components of the capital structure and their proportion in the total capital. Cost of Debt – To find the cost of debt‚ we use the details of the bonds issued by Rollins
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the WACC due effect of the tax shield and hence the value of the firm. Aurora Borealis LLC‚ like any other hedge fund‚ banks on instantaneous rise and fall in stock prices than the long term investment in growth and stability of the firm. The hedge fund plans to short the stock at the moment it rises to the optimal level due to strong signals the hedge fund is trying to pursue. Effect of recapitalization on WACC The current WACC of Wrigley is 10.9%. Since it is all equity firm the WACC is same
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answer for question 1-3. Need a summary of my solution for conclusion. About 2 pages total. Question : Nike‚ Inc.: Cost of Capital 1 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? 2 If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and be prepared to justify your assumptions. 3 Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization
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