1% and its marginal tax rate is 35%. a. What is Lucent’s WACC? b. If Lucent maintains a constant debt‐equity ratio‚ what is the value of a project with average risk and the following expected free cash flows? c. If Lucent maintains its debt‐equity ratio‚ what is the debt capacity of the project in part (b)? part (b)? d. What is the free cash flow to equity for this project? e. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? © 2011 Dr. Tanja Kirn – University of Liechtenstein –
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domestic capital budgeting differ from multinational capital budgeting? How do incremental cash flows differ from total project cash flows? What is the difference between foreign project cash flows and parent cash flows? How does APV analysis differ from NPV analysis? How is the capital budgeting analysis adjusted for the additional economic and political risks? What is real option analysis? Complexities of Capital Budgeting for a Foreign Project Several factors make budgeting
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Purpose The purpose of this Case Analysis Report is to advise Philip Morris on the Acquisition of Kraft Inc. Overview Kraft is a food-focused company with many well known brand names. In 1987 net sales were $9.9 billion which was an increase of 27% over the previous year.‚ and net income increased by 11% to $435 million. This follows an earlier attempt to diversify where in 1980 Kraft merged with Dart Industries and then acquiring Hobart Corporation in 1981. However‚ by the end of 1986
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(6) Delve Mining and Gold Metals are two firms both considering a silver exploration project. Delve Mining is in the mining business and has a weighted average cost of capital (WACC) of 12.8%. Gold Metals is in the gold retail business and has a WACC of 10.6%. The silver project has initial costs of $575‚000 and annual cash inflows of $102‚000 per year for 10 years. Which firm(s)‚ if either‚ should accept the project? Gold metals should accept
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FINANCE 402 FALL 2014 HOMEWORK #6 Due November 20‚ 2014 1. BMA Chapter 18 – Questions 12 and 21 at the end of the chapter on pages 468-469. Q12. Compute the present value of interest tax shields generated by these three debt issues Consider corporate taxes only. The marginal tax rate is 35%. a. $1000‚ one-year loan‚ at interest rate of 8% (tax shield) = (tc x i x D) = (0.35 x 0.08 x $1‚000) = $28 PV(tax shield) = $28/(1+i)^1 = $25.93 b. A five-year loan of $1000 at 8% interest rate.
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Cox Communications Applied Corporate Finance Contents Executive Summary Background Gannett and other acquisitions: possibilities and constraints of financing Feline PRIDES securities: benefits and costs for Cox Communications Valuation of Gannett’s acquisition Conclusions and recommendations Appendix Executive Summary The main purpose of this report is to evaluate an appropriate financing strategy for Cox Communications
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benefits‚ if any. This approach is rarely useful‚ and will typically serve as a minimum value (unless the firm is in severe distress). 3. (i.) Discounted Present Value of the Firm’s Free Cash Flows — commonly referred to as DCF Valuation‚ or WACC valuation Value of the Firm =
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Acova Case EM The purpose of this executive memo is to evaluate the justification to invest in a potential LBO candidate‚ Acova Radiateurs‚ and estimate the possible bidding price‚ keeping the minimum annual return required by Baring Capital’s investors at 30%-35%. 1. Justification of the Potential Transaction We evaluate the prospects of Acova LBO transaction for Barings and come into a conclusion that Acova is a good potential LBO candidate is justified. a. Strong Cash Flow Generation
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MAF302 Corporate Finance Study Guide Important Instruction This study guide provides you of an overview for each of the topic taught in this unit. These overviews however are not sufficient to learn all the materials in each of the topic. I therefore would suggest you to follow the materials in lecture notes and workshops. It is also essential to read and consult the corresponding text book chapters to develop your concept and knowledge in this unit. You will also find some references
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concluding on a firm’s optimal capital structure‚ Opler and Titman (1994) discovered that it is substantially difficult to quantify. While Wrigley’s has been given a B/BB rating‚ due in part to their interest coverage ratio of 1.47; due to the fact that WACC has only increased 0.01%‚ it can be
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