my analysis‚ I will examine why WACC is important in decision-making and I will show how WACC for Nike Inc. is calculated correctly. Also‚ I will calculate the company’s cost of equity using three different models: the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Earnings Capitalization Model (EPS/ Price)‚ I can analyze their advantages and disadvantages and finally conclude whether or not an investment in Nike is recommended. My analysis suggests that Nike Inc.’s
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Valuing Coca Cola Stock Executive Summary The problem set forth in the Coca-Cola case was aimed at making an investment decision regarding the company’s stock. By utilizing the Capital Asset Pricing Model‚ (CAPM)‚ we were able to establish an appropriate rate. The Constant Growth Dividend Model and the P/E Multiple Model allowed us to determine a fair price and compare it to the stock’s current price. Company Overview According to the case study Coca Cola international groups (Latin
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multiple rates are used‚ how should they be determined? I think the best way for pioneer to evaluate all of their projects would be to use a WACC for every division in their company‚ because not all of their projects has the same risk‚ neither the same CAPM‚ etc. Making different WACC make it harder for the company for to evaluate the rate of return‚ maybe that’s why they don’t do this. c. How should Pioneer set capital budgeting criteria for different projects within a given division? What distinctions
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paper fills the gap in literature by giving a comprehensive review of the models and evaluating the historical stream of empirical investigations in the form of structural empirical review. Keywords: Financial economics; Asset pricing; Static CAPM; Dynamic CAPM; Structural empirical review JEL Classifications: G00; G12; G13 1. Introduction In order to simplify the concept of asset pricing‚ it needs to give a snapshot of the literature and a brief overview of perspectives in the field in addition
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both. Why? Only diversifiable risk implies no undiversifiable (market) risk. Thus‚ this is a zero-beta security‚ which is expected to earn the risk- free rate. If it has higher expected return than the risk-free rate‚ this is not consistent with CAPM. It is above the SML and underpriced‚ In an efficient market‚ savy investors would buy this stock pushing its price up‚ lowering its return. In equilibrium‚ its expected return should match the required return‚ i.e. the risk free-rate. If this is not
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and whether or not CAPM and Fama-French Model are adequate. According to CAPM‚ the portfolios of companies with very small market capitalizations and very high book-to-market ratios have essentially doing well‚ since the coefficient of is 0.5 that means the average monthly return 0.5% above the return it should have been given the excess returns on the market portfolio. And have t-stat 3.30‚ so this fund manager has outperformed what the fund manager should have done in CAPM that is considerable
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Northern Yeelirrie Uranium Project is located approximately 40 km south of Wiluna (Figure 1)‚ where Cabral are targeting paleochannels calcrete hosted uranium. Figure 1 Yeerlirrie North Location The project is within close proximity to the large BHP Yeelirrie Project (35 MT @.15 % U308 – non JORC)‚ and other smaller deposits held by Toro‚ Mega Uranium‚ and Uranex (see Table 1). Table 1 Midwest Uranium Projects Resource Estimates (source: Cabral ) Location and Access The Project area
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1. There are two identical firms EQT Corp and DBT Corp except for their capital structure. For example none of the firms pay taxes‚ and EBIT is $22‚000 per year for both firms. There is no growth for any of the firms. EQT is an all equity firm with 1‚000 shares outstanding and expected return of 22%. Since there is no growth‚ EQT will pay out all earnings to shareholders as dividends. In contrast‚ DBT has $40‚000 worth of debt outstanding with interest rate of 5%. There are 500 shares of equity
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Problems (p. 297) 7-2 Constant Growth Valuation Boehm Incorporated is expected to pay $1.50 per share dividend at the end of this year (i.e.‚ D (1) = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock‚ r(s)‚ is 15%. What is the value per share of Boehm’s stock? 1.50 / (0.15 – 0.07) = $18.75 7-4 Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each
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Topic 5: Risk and Return Learning Outcomes introduction to risk and return expected return and risk on individual asset expected return and risk on portfolio systematic and unsystematic risk diversification capital asset pricing model (CAPM) and the security market line Risk and Return M K Lai Page 2 Introduction to Risk and Return finance can be complicated‚ but it can be reduced to three basic concepts cash flows Risk and Return time value of money risk
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