their debt and equity betas. Also‚ there are stark differences between the betas in the segments‚ as well as the different assumptions a financial analyst must use when calculating risk-free and market rates for fixed and floating debt issuances. In order to calculate the WACC‚ we first estimated the cost of debt using the specific guidelines and actual data given. We then used the cost of debt to calculate debt betas. These results were used to estimate unlevered equity betas for the three separate
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Case 3: Globalizing the Cost of Capital and Capital Budgeting at AES Question 1 Explain and comment on the capital budgeting method used historically by AES. Is there a need for change? Explain. Question 2 If Venerus implements the suggested methodology‚ what will be the adjusted discount rate for the Red Oak project (USA) and the Lal Plr project (Pakistan)? Question 3 Calculate the effect that a revision of its cost of capital will have on the Lal Plr project’s NPV. Comment on the
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2. Cost of debt‚ which is determined by adding the spread to Treasury (1.62%) to the rate of 30-year treasury bonds in 2007. Rd=0.0498+0.0162=0.066 3. Cost of equity‚ the EMRP (5%) and D/E (59.3%) was taken out of the context of the case. βa=Equity Beta/(1+D/E)= 1.25/(1+0.593)= 0.78 According to Table1‚ consolidated D/V is 42.2%‚ E/V is 57.8%‚ βe= βa*(1+D/E)= 0.78*(1+0.422/0.578)=1.35 Re=Rf+ βe *EMRP= 0.0498+(1.35*0.05)= 0.1173 4. WACC‚ the tax rate (38.58%) was from the 2006 taxes
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important that market-based value is used‚ and not the book value. Some companies trade their debt public‚ if so the market value of the debt can be determined by using the TRACE pricing database and it would be the ideal method to use. Since in most cases book value reasonably approximates the current market value it will be observed in the Abercrombie & Fitch Co. Annual report and used to determine the capital structure (Koller p. 263‚ 2010). To estimate the market value of the company‚ the number
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www.hbrreprints.org HBR CASE STUDY AND COMMENTARY Should Cheryl initiate an investigation at her new firm? The CEO’s Private Investigation Four commentators offer expert advice. by Joseph Finder • Reprint R0710A If there ever were a time when a chief executive should commission some quiet snooping on her colleagues‚ this might be it. HBR CASE STUDY The CEO’s Private Investigation COPYRIGHT © 2007 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED
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The Embraer E-Jet family is a series of narrow-body medium-range twin-engine jet airliners produced by Brazilian aerospace conglomerate Embraer. Announced at the Paris Air Show in 1999‚ and entering production in 2002‚ the aircraft series has been a commercial success. The aircraft is used by both mainline and regional airlines around the world. Inspired by Santos-Dumont‚ Embraer is one of the world’s leading aircraft manufacturers‚ a position achieved through the commitment to full customer satisfaction
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1. What message is MCI trying to send to financial markets? From 1993 until the start of 1995‚ MCI’s stock had outperformed the S&P. However‚ in 1995‚ the stock’s performance was poorer than the S&P. With shareholder’s getting restless‚ the idea of a stock repurchase was being considered. Depending on which option MCI chooses—stock repurchase with debt issuance or open market repurchase program—the message being sent could be different. Let’s consider option one—MCI issues debt and uses the
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Government including military www.tttech.com UAV Copyright © TTTech Computertechnik AG. All rights reserved. Page 5 Boeing Market Outlook Ensuring Reliable Networks 30‚900 new airplanes! Strong demand for passenger and High Growth Market freighter airplanes through 2029. Both for fleet growth and replacement of airplanes that retire during the forecast period. Boeing also projects the demand for conversion of passenger airplanes to freighters. www.tttech.com Copyright © TTTech Computertechnik
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hard for me to understand/figure out due to improper use of English grammar.) Case Synopsis: Heinz Ruhnau‚ Lufthansa ’s CEO‚ needed to determine how to deal with the foreign ex change risk resulting from the purchase of 20 new aircraft. Due to Lufthansa ’s recent growth‚ it needed new aircraft. Its official policy was to have half Boeing and half Airbus aircraft‚ so it needed to purchase some aircraft from Boeing to offset its pending purchase of aircraft from Airbus. Ruhnau needed to determine
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What is Beta? How is it typically estimated? What is a drawback of this? How is the cost of debt estimated? Should you use book or market value weights? If you want market value of debt use (BV/100) * Price Should you use marginal or average tax rates? Why? How do the 2009 and 2010 WACCs compare? Why are they similar? 4. What is your best estimate of the WACC for Kraft‚ Campbell‚ and Del Monte? How do these WACC influence your thinking about the WACC for Heinz? American Greetings Case 1.The shares
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