Chapter 21 Problem 3 A firm’s current balance sheet is as follows: Assets = $100 Debt = $10 Equity = $90 A. What is the firm’s weighted-average cost of capital at various combinations of debt and equity‚ given the following information? Debt/Assets | After-tax Cost of Debt | Cost of Equity | Cost of Capital | 0% | 8% | 12% | 12.00% | 10% | 8% | 12% | 11.60% | 20% | 8% | 12% | 11.20% | 30% | 8% | 13% | 11.50% | 40% | 9% | 14% | 12.00% | 50% | 10% | 15% | 12.50% |
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To: Kim Ford Date: 2/13/13 Subject: Nike’s Cost of Capital I agree with Ms. Ford’s estimate of Nike’s Cost of Capital at 8.4% The WACC is the appropriate method for valuing Nike’s capital. The WACC takes your cost of debt x the percent of capital + CAPM x equity percent of capital and it tells the rate of return the company needs to return based on its capital structure. In my opinion Ms. Ford has correctly assumed Nikes cost of debt and cost of equity. Her projection for cost of debt uses
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II states that higher debt does not affect cost of capital of a firm. The reason is that the lower cost of debt is offset by a greater cost of equity‚ which means investors demand a higher return on equity as a result of the higher risk coming with more debt‚ that holds the firm’s cost of capital unchanged. Based on the above proposition‚ moderate borrowing may not increase the return on equity. It is suggested that the firm’s capital structure (proportions of debt and equity) is irrelevant to
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International Project Financing In partial fulfillment of the degree of Master of Finance & Control Submitted by: Deepti Jayam Roll no 1830 Department of Financial Studies University of Delhi South Campus Internal supervisor: External supervisor: Dr. V. K. Vasal Mrs. Chetna Khuller Department of Financial Studies Head Treasury and Finance University of Delhi South Campus NIIT Lt. New Delhi. New Delhi
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the rate of return is more volatile than the market rates e. Incremental cost of capital The incremental cost of capital refers to the average cost a company incurs to issue one additional unit of debt or equity. The incremental cost of capital varies according to how many more or fewer units of debt or equity a company wishes to issue. f. WACC The cost of capital is the weighted average cost of capital formula (WACC)‚ which weights the cost of debt and
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Annual Report project for the appropriate ratios.) Comment on the financial health of the company. Please look at ratio trends and compare to industry average. (4) WEIGHTED AVERAGE COST OF CAPTIAL (WACC): Estimate the components of the cost of capital for your company using market data. a)
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requirements‚ Proper mobilization‚ Proper utilization of finance‚ Maintaining proper cash flow‚ Survival of company‚ Creating reserves‚ Proper coordination: ‚Create goodwill‚ Increase efficiency‚Financial discipline‚ Reduce cost of capital‚ Wealth maximization‚ Prepare capital structure and Reduce operating risks Scope of Financial management Financial managementhas a wide scope. According to Dr. S. C. Saxena‚ the scope of financial management includes the following five ’A ’s. 1. Anticipation: Financial
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Company Business Overview Macro-Evironment & Industry SWOT Analysis Porter’s Five Forces Section 2: Business & Strategy Risks / Financing Requirements Section 3: Main Objectives of the Financial Policy Section 4: Financial Flexibility – Cost of Capital Section 5: Is Deluxe’s Current Debt Level Appropriate ? Section 6: FRICTO Analysis Section 7: Conclusion - Recommendations 2 Section 1: DELUXE Corporation 1.1. Company Business Overview Deluxe Corporation (NYSE: DLX) is one of the
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enterprises. The sequence of treatment was on certain episodic events like formation‚ issuance of capital‚ major expansion‚ merger‚ reorganization and liquidation during the life cycle of an enterprise. It laid heavy emphasis on long-term financing‚ institutions‚ instruments‚ procedures used in capital markets and legal aspects of financial events. That is‚ it lacks emphasis on the problems of working capital management. It was criticized throughout the period of its dominance‚ but the criticism is based
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NOVA SOUTHEASTERN UNIVERSITY H. Wayne Huizenga School of Business and Entrepreneurship Masters Programs FIN 5080 – APPLYING MANGERIAL FINANCE APPENDIX A– WEEKEND FORMAT INTRODUCTORY REMARKS: This syllabus comprises of two parts: 1) the MAIN Syllabus; and 2) the appendix that pertains to the format of your class (Appendix A = Weekend format; Appendix B = Day format; Appendix C = Online; and Appendix D = Week Night). Each class‚ regardless of format‚ will have a Course Website‚ which
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