Different perspectives on risk and return Semester 1‚ 2013 FINC5001 Capital Markets & Corporate Finance BUSINESS SCHOOL THE UNIVERSITY OF SYDNEY 1. Executive Summary This paper aims to examine Mean-Variance Analysis and Capital Asset Pricing Model in respect to expected return and risk for two stock portfolio. We have chosen to examine Woolworths Limited (Woolworths Limited 2013)‚ and Cochlear Limited (Cochlear 2013). We first discuss about Mean-Variance Analysis and
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| NIKE‚ INC.: COST OF CAPITAL | | | | | | Introduction Our report aims to help Kimi Ford make a decision on her investment of Nike. We choose WACC as our method to estimate the cost of capital‚ which can be used as a discount rate to verify whether Nike is correctly valued in current market. We have mainly four steps to calculate WACC: I. Identify the type of cost of capital; II. Figure out the weights of debt and equity; III. Calculate the cost of debt and equity respectively;
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A Capital Budgeting Decision — Gillette Prepared by Ray Kerlagon The following capital budgeting situation is up for review. Things to consider include: Identification of incremental cash flows. Any working capital requirements and/or sunk costs. What is the appropriate capital budgeting technique? How should we address risk? What is the cost of capital? What is the project’s IRR? PROJECT DEFINITION: A market research study was conducted in 1997 at a cost of $1‚500‚000 that indicates a high receptivity
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Case Study on Nike Inc. What is the WACC and why is it important to estimate a firm’s cost of capital? The WACC is a firm’s overall cost of capital‚ taking into account the weighted average of its equity and debt costs of capital. A firm’s WACC is the minimum return (hurdle rate) required by its capital providers to stay invested. Therefore managers of a firm should only invest in projects that generate returns exceeding the firm’s cost of capital. For the company’s owners the WACC is the minimum
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• How did you measure Marriott’s cost of debt? 1. Are the four components of Marriott ’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of the cost of capital? Does this make sense? 3. Using the CAPM‚ estimate the weighted average cost of capital for a. Marriott Corporation b. The lodging division c. The restaurant division 4. Towards answering #3 a. What risk-free rate and risk premium did you use to calculate the cost of equity? Why did
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a. True b. False (24.4) SML FN Answer: a EASY . If you plotted the returns of Selleck & Company against those of the market and found that the slope of your line was negative‚ the CAPM would indicate that the required rate of return on Selleck’s stock should be less than the risk-free rate for a well-diversified investor‚ assuming that the observed relationship is expected to continue in the future. a. True
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Introduction This report is aim to analyse the benefits of risk-adjusted performance measurements to Zeus Asset Management. Zeus Asset Management is a fund management firm founded in 1968 in Atlanta by Tir Jerry Schneider. It serves both institutional and individual investors and with more than $1.7 million assets under management. The director of research‚ John Abbot‚ is considering adopting risk-adjusted approach in performance assessment. Zeus’s competitiveness analysis Zeus’s main competitors
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54(23.64 - 8) = 32.09% c. How does Zemin’s historical average return compare with the return you believe to be a fair return‚ given the firm’s systematic risk? When comparing historic average return of Zemin with the fair return of the firm‚ CAPM can be instrumental
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standard cap-weighted indexes. The true importance of the difference may have been best noted by Benjamin Graham: In the short run‚ the market is a voting machine‚ but in the long run‚ it is a weighing machine. T he capital asset pricing model (CAPM) says that the “market portfolio” is mean– variance optimal. Although the model is predicated on an array of assumptions‚ most of which are arguably not accurate‚ it leads to the conclusion that a passive investor/manager can do no better than
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managers most often use a method called the capital asset pricing model (CAPM) .The capital asset pricing model (CAPM) is the standard risk-return model used by most academicians and practitioners. The important concept of CAPM is that investors are rewarded for only that portion of risk which is not diversifiable. This non-diversifiable risk is termed as beta‚ to which expected returns are linked. Problems can arise when using the CAPM to calculate a project-specific discount rate. For example‚ one common
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