has an up-front cost (t = 0) of $120‚000‚ and it is expected to produce cash inflows of $80‚000 per year at the end of each of the next two years. Two years from now‚ the project can be repeated at a higher up-front cost of $125‚000‚ but the cash inflows will remain the same. • Project B has an up-front cost of $100‚000‚ and it is expected to produce cash inflows of $41‚000 per year at the end of each of the next four years. Project B cannot be repeated. Both projects have a cost of capital of 10
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Chapter 6: Discussion Question #4 (p. 223) 4. Why is it usually easier to forecast sales for seasoned firms in contrast with early-stage ventures? Typically‚ it is easier to forecast a seasoned firm’s sales to that of an early-stage venture because the seasoned firm will have an operational history. Basing current sales on historical data is easier to do than trying to estimate sales based on little to no historical data to benchmark from. If you are a start-up / early-stage venture and
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Brief 1. What is the weighted Average Cost of Capital for Marriot Corporation? WACC for Marriott Corp is 11.89 WACC of divisions: Lodging 10.29‚ Restaurant 13.49‚ Contract Services 13.615 a) What risk-free rate and the risk premium did you use to calculate the cost of equity? We used 8.95% as the risk free rate (LT Government Debt) and the MRP we used was 7.43%‚ which means are expected market return is 8.95+7.43=16.38% b) How did you measure Marriott’s cost of debt? We added the credit spread
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for the student are to resolve the debate‚ estimate weighted average costs of capital (WACCs) for the two business segments‚ and respond to the raider. Suggestions for complementary cases: “Nike Inc.” (case 13) gives an introductory exercise in the estimation of the cost of capital. “Coke vs. Pepsi‚ 2001” (case 14) offers the estimation of WACCs for two competitors and opportunities to reflect upon how business risk drives cost of capital. “Phon-Tech Corp.” (UVA-F-1161) is a simplified
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research tells us that Liedtke used base case assumptions to value Mercury‚ and also wanted to consider the value of possible synergies as well. FCFF Note: EBIT equals to the consolidated operating income‚ and the tax rate is 40%. Cost of equity‚ cost of debt‚ WACC and the leverage effect Assumptions: (1) Use 5-year U.S. Treasury obligation yield 4.69%‚ as the riskless rate for the period would correspond with the 5-year period of foreseeable cash flows. (2) For risk premium =
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for the current costs of its three basic sources of capital—long-term debt‚ preferred stock‚ and common stock equity—for various ranges of new financing. Source of Capital Range of New Financing After Tax Cost Long-term debt $0 to 320‚000 6% $320‚000 and above 8% Preferred stock $0 and above 17% Common stock equity $0 to $200‚000 20% $200‚000 and above 24% The company’s capital structure weights used in calculating its weighted average cost of capital are shown
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353-354 1. Compute the yield to maturity and the after-tax cost of debt for the two bond issues. Bond 1 | | Maturity | 12 | Coupone | 3‚5% | Par | 1000 | Flotation | 0 | PV | 1031 | Before tax | 3‚19% | After tax cost of Bond | 2‚10% | Bond 2 | | Maturity | 32 | Coupone | 4‚0% | Par | 1000 | Flotation | 0 | PV | 1035 | Before tax | 3‚8% | After tax cost of Bond | 2‚5% | 2. Compute BioCom’s cost of preferred stock. Preferred Stock | | Price | 19 |
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company is having sufficient supply of raw materials from the suppliers with ample plants‚ latest technological machines that is equipped with sufficient latest devices as well as sufficiently served by railroad sidings. The company is deemed as a low cost manufacturer that portrays strange manufacturing expertise and a dangerous competitor. Weakness The
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production would begin in 2008. The project will cost $18 million‚ with $16 million in 2007 and an additional $2 million in 2008. The $18 million investment will be depreciated using the straight-line method for six years and a zero salvage value. Although‚ the equipment is believed to be able to be sold at the end of the project for $1.8 million. The main purpose of the project is to save on operational costs by producing shortwood. The cost savings is estimated to be $2 million in the first
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firm`s weighted average cost of capital (WACC)‚ Kaka contacted a leading investment banking firm‚ which provided the financing cost data shown in the following table. Financing Cost Data Ace Products Company Long-term debt: The firm can raise $450‚000 of additional debt by selling 15-year‚ $1‚000- par-value‚ 9% coupon interest rate bonds that pay annual interest. It expects to net $960 per bond after flotation costs. Any debt in
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