for investors as well as which firms should be identified as comparables. 1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland’s choice of equity market risk premium appropriate? If not‚ what recommendations would you make and why? 3. Should Midland use a single corporate
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Worldwide Paper Case Study Incorporated in 2001‚ Worldwide Paper Company (WPC) is a corporation which is always focus on providing finest paper products to its clients and stakeholders. Headquartered in UAE‚ WPC’s most sales are distributed from the regions of Middle East‚ Asia‚ Africa and Levant. As a global company nowadays‚ the area of operation of WPC includes paper trading-commodity and conventional grads‚ indenting and custom order-commodity and conventional grades‚ merchanting and stock
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to evaluate Nike as a viable choice‚ Kim has to calculate the cost of capital for the company and make sure assumptions are a direct function from the estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However‚ the assumptions made to calculate WACC‚ in this case‚ are the underlying problem because some of the assumptions made are incorrect. Analysis Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the
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There are several different methods that can be used to find the WACC and use it to decide whether a stock will be a good buy or not. The Earning’s Capitalization Model is not appropriate in this case because it does not work well for growing companies‚ as Nike is trying to do‚ and the Dividend Discount Model has several subjective inputs making it inferior to the CAPM method of determining WACC. Using this method Nike’s WACC is found to be 9.8%. Using this Nike is found to have very good returns
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capital [WACC]. The estimation of Boeing’s WACC must be consistent with the overall valuation approach and the definition of cash flows to be discounted. Note that this process is a forward looking focus and is laden with uncertainty. It is how the assumptions are modeled that many costly mistakes can be made. While finding a rate of return for an individual project‚ it is important to remember that WACC is only appropriate for an individual project. The many factors affecting WACC are:
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for capital budgeting rather than Return on Investment (ROI) method and Payback Period method. Secondly‚ I calculate the Weighted Average Cost of Capital (WACC) which will be used as discount rate while calculating NPV. Then‚ I decide which rapid prototyping system company should invest as well as I compare the each expansion projects’ IRR with WACC to decide which projects should be invested and which should not. After deciding projects which should be accepted‚ I draw Investment Opportunity Schedule
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growth rate to determine the terminal value in the DCF valuation. To derive the DCF‚ it is critical for this analysis to obtain the discount rate. Thus‚ it estimated the Weight Average Cost of Capital (WACC) as the discount rate. To estimate the WACC‚ the following inputs are estimated to generate the WACC of each country: cost of debt and the dost of equity‚ and the debt to value ratio and equity to value ratio. After the analysis obtained the discount rate of each country‚ the DCF values of the three
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61 Questions for Extra Credit Points. Due 12/16 (Wednesday) (Please show your work and provide your explanation) You need to show your work and explanations. Jotting down only the answers is not acceptable. If you do all 100 questions‚ you will get up to 3 extra points added to your final total score (after I determine your total score based on mid-terms‚ HWs‚ and the final). Chapter 5 1. You plan to analyze the value of a potential investment by calculating the sum of the present values
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specific items of capital should be included in the SIVMED’s WACC? Should before-tax or after-tax values be included? Should historical or new values be used? Why? Answer: WACC covers computation of SIVMED’s cost of capital in which each category of capital is proportionately weighted. All capital basis - common stock‚ preferred stock‚ bonds or any other long-term borrowings – should be listed under SIVMED’s WACC. We determine WACC by multiplying the cost of the corresponding capital component
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the use of debt in the capital structure‚ and repurchase undervalued shares 2) Marriott uses WACC to measure the opportunity costs of capital of investments with similar risks. Each division of Marriott has a different cost of capital‚ based on debt capacity‚ debt cost‚ and equity cost. They use the estimate of cost of capital to determine the fraction of debt that should be floating rate debt. WACC is also used to determine the premium above government bond rates for their unsecured debt. This
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