discretion on how to estimate such a cost. Surveys conclude that about 93% of companies us a weighted-average cost-of-capital along with some sort of discounting in their capital budgeting. Smaller companies tend to use a capital-asset pricing model (CAPM) along with the WACC when estimating the cost of equity. Both of the methods‚ along with firm-to-firm discrepancies‚ will be described below. Weighted-Average Cost of Capital With the WACC‚ corporations develop a standard to use against capital
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estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2. If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and justify your assumptions. 3. Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4. What should Kimi Ford recommend regarding an investment in Nike? 2 Case Overview Nike‚ Inc. NorthPoint Group Investment
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Table of Contents pg. 2 3. Introduction/ Executive Summary pg. 3 4. Modern Portfolio Theory pg. 3 5. Portfolio Management pg. 4 6. Controlling the Risk pg. 5 7. Diversification pg. 6 8. CAPM pg. 7 9. Beta: Advantages and Disadvantages pg. 8 10. Options pg. 10 11. Hedging pg. 11 12. Net Present Value (NPV) pg. 12 13. Technical Indicators: pg. 14 14. Efficiency Frontier
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Individual research assignment Introduction The international company which called Buildco Ltd establishes a new company in Australia which is a wholly owned subsidiary of Buildco. The purpose of incorporating the subsidiary is to solve the problem of sourcing debt finance in the international marketplace. However‚ the property development project which is undertaken by Buildco and funded by Asset Pty Ltd is financially unviable. Consequently‚ the Buildco expects that the Asset could write-off
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variance portfolio? (5 marks) 2. (a) With reference to the Capital Asset Pricing Model (CAPM) with a risk-free asset‚ explain what is meant by the following: (i) Capital market line‚ (ii) Security market line‚ (iii) Characteristic line. (9 marks) (b) Suppose the relevant equilibrium model is the CAPM with unlimited borrowing and lending at the risk-free rate. Given RF = 0.04 and E(RM) = 0.10‚ complete
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firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2 If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and be prepared to justify your assumptions. 3 Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization ratio. What are the advantages and disadvantages of each method? Introduction : Solution Question 1 : The WACC is the weighted average cost of capital for a firm
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seemed to be rich in oil. A cost-benefit analysis needed to be done to make an investment decision for production facilities to extract oil from the ground. Evaluating investment opportunities in emerging markets is a mix of art and science. Unlike CAPM for developed markets‚ there is no standard pricing model for emerging markets that serves as a benchmark. The proposed models are many and varied‚ but none has gained wide acceptance and use. Currently‚ investors‚ companies‚ and investment banks use
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| Table of Contents Cost of Capital 2 Value of Equity 2 Cost of Equity 2 CAPM Model 2 Dividend Growth Model 3 Value of Debt 3 Cost of Debt 4 WACC (Weighted Average Cost of Capital) 4 Comparison to Joanna Cohen’s Analysis 4 Financial Statement Analysis 5 Nike Inc. 5 Financial Ratios 6 Leverage Ratios 6 Efficiency Ratios 6 Liquidity Ratios 7 Profitability Ratios 7 Valuation Ratios 7 Conclusion 8 Appendix A – Ratio Calculation 9 Leverage Ratios 9 Efficiency Ratios 9 Liquidity Ratios
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Model (CAPM) and the Price/Earnings Multiple. Based on these three calculations‚ we wish to determine the profitability of Coca Cola’s stock and ultimately advise Jessie’s clients to either purchase‚ sell or hold their existing Coca Cola stocks. Methodology In order to find the future stock price of Coca Cola‚ we will be analyzing the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Price/Earnings Multiple method. 1. The Capital Asset Pricing Model (CAPM) illustrates
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project life and inflation are also critical parts of the capital budgeting decision. 2. How can the Capital Asset Pricing Model be used to estimate the cost of capital for a real (not financial) investment decision? The intuition behind CAPM is that the expected return on a stock is comprised of the risk free rate and the market risk premium. The market risk premium consists of both business risk or the firm’s sensitivity to business cycles and financial risk or the amount of long-term
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