Prepared for The Journal of Applied Corporate Finance Vol. 15‚ No. 1‚ 2002 How do CFOs make capital budgeting and capital structure decisions?1 John R. Graham Associate Professor of Finance‚ Fuqua School of Business‚ Duke University‚ Durham‚ NC 27708 USA Campbell R. Harvey Professor of Finance‚ Fuqua School of Business‚ Duke University‚ Durham‚ NC 27708 USA National Bureau of Economic Research‚ Cambridge‚ MA 02912 USA March 8‚ 2002 1A longer and more detailed version of this paper is published
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impacted Starbucks’ recent performance‚ Starbucks has still remained profitable‚ and there are generally positive expectations for the next year. Question 2 a. NOPAT = [Operating income – (1 –Tax rate)]; Tax rate = Income tax / EBIT b. Invested Capital = (Accounts receivable + Inventories + Prepaid expenses & other current assets) – (Current liabilities) + (Long-term investments + Equity & cost investments + Net PPE + Other assets + Other intangible assets + Goodwill) c. Book value of interest-bearing
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that will enable students to understand and analyze the financial environment within which managerial decision making takes place. Topics to be addressed include markets and interest rates‚ risk and return‚ bond and stock valuation‚ capital budgeting‚ the cost of capital‚ dividend policy‚ financial leverage‚ and the criteria financial managers use to make investment choices. PRE-REQUISITES Acct 2102‚ Econ 2105 and Econ 2106 REQUIRED COURSE MATERIAL Required Text: CFIN 4‚ 4th Edition‚ by S. Besley
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analysis of Road King Trucks’ new project which is introducing a new product into its product line. I will decide whether run the project or not. Six issues will be discussed as follows 1) importance of energy cost; 2) project’s cash flows; 3) cost of capital; 4) choose an engine 5) evaluation 6) accept or reject. We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the scale like this. The company has a bond rating of AA
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Principles of Managerial Finance FIN/419 P12.4 Break even analysis. Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each‚ variable operating costs are $10.48 per CD‚ and annual fixed operating costs are $73‚500. A) Find the operating breakeven point in number of CDs. Q= FC / P- VC Q= 73‚500 / 13.98 – 10.48 Q= 21‚000 CDs B) Calculate the total
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his current situation at another employer – Current responsibilities include • Shareholder reporting: one individual • Capital budgeting: major capital expenditure program just completed – Harrington facilities the most modern in the industry‚ excellently maintained • Financial forecasting and planning: level production; 98% re-order rate for product • Working capital management: pay cash for all orders when due • Debt issuance: two unutilized $1M lines of credit • Equity issuance and
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1. CORPORATE GOVERNANCE Objective of corp finance: maximize firm value. Narrower objective of maximizing stockholder wealth; when stock is traded and markets are viewed to be efficient‚ objective is to maximize stock price. A. Stockholder interests vs management interests In theory: stockholders have significant control over management. Mechanisms for discipline: Annual meeting and BOD In Practice: Most stockholders do not go to meetings since cost of going exceeds the value of their holdings; incumbernt
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Weighted Average Cost of Capital (WACC) Calculations The weighted average cost of capital (WACC) is the discount rate used in the discounted cash flow analysis. Usually‚ the WACC is the weighted average of the cost of debt (Kd) and the cost of equity (Ke)‚ since debt and equity are the most common sources of funds for the companies. In general‚ the formula for WACC is the following: As implied by the formula itself‚ if a company does not have interest-bearing debts‚ then its WACC would equal
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decisions in a corporation‚ including investing‚ financing and working capital management decisions. COURSE CONTENTS: This course provides basic concepts of the time value of money‚ valuation and rates of return‚ cost of capital and capital budgeting. Students will learn about how capital markets function‚ about different types of securities and financing instruments that exist‚ and about how to manage cash flows. Also‚ risk‚ working capital management‚ leverage‚ forecasting‚ and the analysis of financial
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debt in exhibit 3? 2. How much potential value‚ if any‚ can AHP create for its shareholders at each of the proposed levels of debt? 3. What capital structure would you recommend as appropriate for AHP? What are the advantages and disadvantages? 4. How might AHP implement a more aggressive capital structure policy? What are the alternative methods for leveraging up? Case 2: Dividend policy at FPL Group (Week 10 – not final) 1. What
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