this plant? All rights reserved - Christopher B. Alt 2 Key Steps in Capital Budgeting Estimate CFs (inflows & outflows) Assess riskiness of CFs Determine the appropriate cost of capital Find NPV and/or IRR Accept if NPV > 0 and/or IRR > WACC All rights reserved - Christopher B. Alt 3 Independent vs. Mutually Exclusive Projects Independent projects: if the cash flows of one are unaffected by the acceptance of the other Mutually exclusive projects: if the cash flows of one can
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Question 1 As a leading producer‚ marketer and importer of wines and distilled spirits‚ Brown-Forman was the fifth-largest distiller in the United States. But the company spent huge amount of money advertising premium brands and significantly less on low profit brands. In the late 1970’s‚ the whiskey market declined and this presented Brown Foreman with growth challenges in a mature market. Brown-Foreman’s response to market pressures and competition was to aggressively move into other faster
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Executive Summary The case‚ Marriott Corporation: The Cost of Capital (Abridged)‚ concentrates on making decisions based on capital asset pricing model (CAPM) and the weighted average cost of capital (WACC) to measure the opportunity cost for investments. Dan Cohrs‚ the Vice President of Finance of Marriott Corporation‚ had to deal with making recommendations for the hurdle rates at Marriott Corporation and its three divisions which are lodging‚ restaurant and contract services. In calculating
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1. Calculate TRUST’s company after-tax WACC. The risk-free rate was 4.21%‚ the market risk premium was 6% and the company tax rate was 30%. The WACC should be rounded to four decimal places. After-tax WACC = rD (1-Tc) D/V + rE E/V rE = rf + βequity(rm – rf) rE = 0.0421 + 0.81(0.06) rE = 0.0907 E = number of outstanding shares x current share price E = 60 million x $3.43 E = $205.8 million D = $44 million bank loans + $1.2 million short-term hire purchase commitments D = $45.2 million
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Corporate Finance Nike‚ INC: Cost of capital 1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? Definition of WACC (Weighted Average Cost of Capital): WACC is basically the average of the cost of finance (debt and equity). Since a company’s assets can be financed by debt or equity‚ WACC can show the averages of the costs involved in the sources of financing. These costs are then weighted
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When brothers Shep and Ian Murray quit good jobs in New York City to start a business with an idea they had hatched a year ago‚ their family and friends thought that they were crazy. Both were in their 20’s and unhappy at work‚ yet few people in similar situations were ditching good paying jobs to start selling neck ties. Looking back‚ both brothers see their peers‚ now in their 30’s and 40’s who are stuck working at corporate jobs that they don’t enjoy just to pay their bills. Mortgages and other
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(economic value added) from 2001 to 2003‚ and provides income statement and balance sheet forecasts to aid in this task. We also need to determine each company’s weighted-average cost of capital (WACC) in order to estimate EVA. The primary objective of this case is to introduce the concepts and calculation of WACC and EVA. Suggested Questions 1. What is EVA? What are the advantages and disadvantages of using EVA as a measure of company performance? 2. Please examine the historical performances
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Large Aircraft (VLA) market for the last 30 years. In order to make the decision of whether to take on this project‚ Airbus needed to find out the net present value of this investment. In this case‚ our team used both weighted average cost of capital (WACC) and flow to equity (FTE) to analysis the whole undertaking. Assumptions Before getting into more details about the expected financial return from the investment‚ we need to clarify several key issues. First‚ the investment in the A3XX is incredibly
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I. Summary: The Teletech Corporation is a U.S company that provides integrated information movement and management. It has two main business divisions‚ which are The Telecommunication Services‚ and The Products and Systems. In Telecommunication Services division‚ it primarily provided many kinds of phone service to business and residential customers. In fact‚ it performed a network for 7 million customer lines throughout Southwest and Midwest. The division archived an increasing average rate of 3%
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and the financial stability of the company. Before one invests in a company‚ it is important for the investor to be aware of the company’s cost of capital‚ and to know what is the firm weighted average cost of capital (WACC). Within this report I emphasize the importance of WACC and why it is an important financial mechanism that all investors should utilize before investing in a company. I calculated Nike’s weighted average cost of capital into two separate parts to truly understand the pros and
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