the expected return on debt is 6% with market value weight of 1/3. Therefore the firm’s pre-transaction WACC is 12% WACC (pre-transaction) = 2/3 * 15% + 1/3 * 6% = 10% + 2% = 12% a) (4 points) After the transaction GP will be all equity financed. The firm’s cost of equity the equals the WACC. As there are no taxes the firm’s WACC is independent of its capital structure and remains at 12%. WACC (post-transaction) = 12% = rE‚U * 1/1 => rE‚U = 12% b) (4 Points) In this case the debt-to-value ratio
Premium Weighted average cost of capital Generally Accepted Accounting Principles Corporate finance
CASE 46 THE TIMKEN COMPANY Teaching Note Synopsis and Objectives The acquisition of Torrington from Ingersoll-Rand (IR) required a strategy that would meet both the investment and the financing objectives of the Timken Company. In that regard‚ the case provides an excellent example of the principle that investment and financing decisions can be considered independently. In effect‚ Timken captured the positive NPV of Torrington even though Timken was required to increase its leverage beyond
Premium Stock market Stock Investment
1) How much importance should be given to the energy cost situation? Michael Burton’s proposal to expand into new energy efficient products is justified by increasing interest in the public and private sectors to reduce energy costs. At the highest level of government‚ the Obama administration has tied the US economy’s energy policy with its future success and competitiveness with other global powers. In a speech on June 2009‚ President Obama specifically mentions the Energy Department’s plans to
Premium Cash flow Net present value Internal rate of return
TOKYO DISNEYLAND AND THE DISNEY SEA PARK: CORPORATE GOVERNANCE AND DIFFERENCES IN THE CAPITAL BUDGETING CONCEPTS AND METHODS BETWEEN AMERICAN AND JAPANESE COMPANIES. 1.What are the industry differences in US Corporate Governance and Japanese Corporate Governance? JAPANIES CORPORATE GOVERNANCE US CORPORATE GOVERNANCE Stakeholders of organiztions: Japanies system believs in the wealth maximization of stake holders‚ including managers‚ labour‚ suppliers‚ crediters etc American syatem always emphasized
Premium Net present value Decision making Internal rate of return
BUS 3303 Finance Course review Ale Previtero AGENDA 1. Overview of valuation cases 2. WACC • Cost of equity‚ choosing beta‚ choosing weights‚ when to use premium. 3. Valuation using Discounted Cash Flow (DCF) • Key assumptions‚ Terminal Value‚ sensitivity 4. Valuation using multiples • Key points‚ pros & cons‚ choosing comparable firms • Which multiple? Which year? Example. 5. Financing an Acquisition • Determine price. Financing. Making a decision. 6. Final exam
Premium Stock market Discounted cash flow Fundamental analysis
ANALYSIS OF USEC Inc.‚ Prepared For: Dr. Doina Chichernea BUAD 6200 SPRING 2011 The University of Toledo APRIL 21‚ 2011 Executive Summary USEC is the world’s leading supplier of enriched Uranium to nuclear power plants. Due to the expiration of long term energy cost savings contracts‚ USEC is examining the possibility of taking on a new project called the American Centrifuge Project. This project will utilize a different process for Uranium enrichment‚ which is the core business process
Premium Net present value Weighted average cost of capital Internal rate of return
Joseph Taj Ahn Nyguyen J Yu Fin 423 Haddad Nov 18‚ 2014 Philip Morris Inc.: Seven Up Acquisition (A) This case discusses Philip Morris Inc. intentions to acquire the Seven-up Company in an effort to diversify their consumer goods. The decision has already been made‚ however they must decide on an offer price to buy out the company. This report will discuss PM’s acquisition strategy and its appropriateness‚ along with whether or not 7up fits the criteria of PM’s strategy. The report will further
Premium Net present value Time Present value
After studying this module‚ you should be able to: 1. Define the overall cost of capital 2. Calculate the cost of individual components of a firms’ overall cost of capital‚ cost of debt‚ cost of preferred stock and cost of equity 3. Calculate the firm WACC 4. Be able to define the term capital structure. 5. Explain the traditional approach to capital structure and the valuation of a firm. 6. Discuss the relationship between leverage and the cost of capital as originally set forth by Modigliani and Miller
Premium Finance Corporate finance Stock
Chapter 14 The Cost of Capital 14-1. Templeton’s investment of $400M will be financed with $300M in debt and $100M in equity. Thus after the purchase‚ Templeton’s balance sheet (market value and book value‚ at t = 0) will look like this: ASSETS $400‚000‚000 DEBT $300‚000‚000 $400‚000‚000 EQUITY $100‚000‚000 $400‚000‚000 ) = 75% in debt financing‚ and ( $100‚000‚000 ) = 25% in equity Thus Templeton is using ( $300‚000‚000 $400‚000‚000 $400‚000‚000 financing. Its debt and equity weights are therefore
Premium Stock Bond Weighted average cost of capital
one of our products every time they visit the grocery store. In this business model for our company‚ we include the important inputs and assumptions for the Balance Sheet (historical and future data)‚ Income statements and other estimated model – WACC‚ Terminal Value‚ Enterprise Value‚ Stock Price‚ etc. After estimating enterprise values in the future‚ we can find that our company is undervalued. Stock holders are supposed to add holdings of shares and gain more equity. Analysis of the Model
Premium Revenue Stock market Stock