FIN-516 – WEEK 2 - HOMEWORK ASSIGNMENT PROBLEM BASED ON CHAPTER 15 – WACC AND THE HAMADA FORMULA Bickley Engineering Company has a capital structure of 30% Debt and 70% Equity. Its current Beta is 1.3‚ and its Market Risk Premium is 7.5% Points. The current Risk Free Rate is 3.5%. Bickley’s marginal tax rate is 40%. What is the Unlevered Beta of Bickley? Bickley’s management would like to change its capital structure to 15% Debt and 85% equity by retiring its bonds yielding 8%. The
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Week One Discussion Questions • What is the capital market? How is the primary market different from the secondary market? In your opinion‚ are these markets efficient? Why? • What are three primary roles of the U.S. Securities and Exchange Commission (SEC)? How does the Sarbanes-Oxley Act of 2002 augment the SEC’s role in managing financial governance? Do you think businesses became more ethical after Sarbanes-Oxley was passed? Provide examples to support your answer. • What ratios measure
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at par‚ as against Mr. Brinepool assumption that the rate of return for the preferred stock is stand at 6%. With the preferred stock selling at $70‚ the rate of return should be‚ rpreferred = D / Po = $6/$70 = 0.086 or 8.6% In calculating the WACC‚ I reflected the market values (not book value) in consistency with your priority in investor rate of return expectations‚ as
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Billabong Dividend Policy to similar firms 14 4.4 Relationship Between the Company’s Characteristics and Dividend Policy 15 4.5 Alternatives to Dividend Payments 16 4.6 Optimal Dividend Policy 16 5.0 Valuation 18 5.1 Weighted Average Cost of Capital (WACC) 20 5.2 Estimation of Share Price 23 5.3 Sensitivity Analysis 25 5.4 Comparison between the calculated and actual share price 28 5.5 Investment Decision 28 6.0 References 29 7.0 Appendix 30 1.0 Introduction Company Overview Billabong was
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Bus M 401 Dixon Case Estimate of WACC for Collinsville Plant The WACC for Collinsville‚ according to our estimations‚ came up to about 16.22% (Exhibit I). We took the average of the unlevered betas of comparable companies‚ 0.91‚ and relevered it according to Dixon’s target capital structure. Dixon’s 5-year historical debt ratio was 27.5%‚ but this approach would not be reliable due to its steep downturn debt ratio from 51% in 1975 to 6% in 1979. Thus‚ we thought that the best estimate of the
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Ilit Raz EMBA – Dickens Cohort Jan 2013 Company Valuation - Elbit Systems Ltd. The following document will try to describe the financial assets and the portfolio of “Elbit Systems” and a company valuation. As part of my military service I spend some time in different project in Elbit Systems‚ working with their R&D department. For the company valuation I’ll use Discount Cash Flow (DCF) method. After valuating the company I’ll calculate the discount premium
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Recom Leading Finance Teams * Utilizes interpersonal and communication skills to lead‚ influence‚ and encourage others; advocates sound financial/business decision making; demonstrates honesty/integrity; leads by example. * Communicates the strategic goals‚ the focus and the owner priorities to subordinates in a clear and precise manner. * Leverages strong functional leadership and communication skills to influence the executive team‚ the property’s strategies and to lead own team. * Oversees
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requirements‚ and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project‚ and he concluded that both projects have risk characteristics that are similar to the firm’s average project. Allied’s WACC is 10%. You must determine whether one or both of the projects should be accepted. A. What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? B. What is
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motors‚ would allow the company to remain in the leisure craft market and utilize its established selling network. To determine which of the two projects are financially more pleasing we need to use calculations to determine the value of the beta‚ WACC‚ NPV and IRR. Fist we want to calculate the net working capital (NWC). The NWC turnover ratio for this new operation was expected to be 6:1.( NWC turnover = Sales/ NWC = 6/ 1 = 3‚500‚000 / NWC. Thus‚ NWC = $ 583‚333.33); then we find the project
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Issuing 3 billion debt will alter the capital structure and increase it WACC. The WACC before debt is 10.11% calculated from CAPM‚ given the unlevered beta equals 0.75‚ risk free rate equals 10 year Treasury yield which is 4.86%‚ and risk premium of 7%. After taking on the debt‚ the D/E ratio calculate from debt over total equity gives almost 70%‚ and the levered beta becomes 1.07. Using the 13% cost of equity given in the case‚ the WACC after recapitalization will be roughly 9.15%. Given 232.441 million
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