Contents 1.0 Chapter 1-Introduction‚ problem statement and objectives 2 2.0 Chapter 2- Literature Review 4 3.0 Chapter 3-Methodology 7 4.0 Chapter 4- Result 8 5.0 Conclusion 9 6.0 References 10 7.0 Articles 11 8.0 Appendix 11 * Chapter 1-Introduction‚ problem statement and objectives This assignment appertains to analyzing the relationship between one dependent variable with various independent variables. This assignment will be divided into 5 chapters in which
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cost of equity. It is commonly equated using the capital asset pricing model formula (below)‚ although articles such as Stulz 1995 question the validity of using a local CAPM versus an international CAPM- also considering whether markets are fully integrated or segmented (if fully integrated‚ there would be no need for a local CAPM). Once cost of debt and cost of equity have been determined‚ their blend‚ the weighted-average cost of capital (WACC)‚ can be calculated. This WACC can then be used as
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maturity and on expected values rather than historical data. The yield to maturity on Nike’s publicly traded debt is 7.17% as opposed to her 4.3%. After tax the cost of debt is now 4.44%. The cost of equity was also calculated incorrectly using the CAPM equation. Instead of using an average of the historical betas I used the current beta as of 6/30/2001‚ the time of the analysis. I also used the geometric mean as the
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Journal of Money‚ Credit and Banking‚ 9(1)‚ 70-85. Retrieved May 28‚ 2010 from EBSCOHost database Chen‚ Sh. & Dodd‚ J. (2002). Market efficiency‚ CAPM‚ and value-relevance of earnings and EVA: A reply to the comment by professor Paulo 507-512. Retrieved May 28‚ 2010 from EBSCOhost database Chew‚ D Fama‚ E. & French‚ K. (1996). The CAPM is wanted‚ dead or alive. The Journal of Finance‚ 51(5)‚ P Hatfield‚ G. (2002). R&D in an EVA world. Research Technology Management‚ 45(1)‚ 41-47.
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effects? a. P/E effect. P/E effect can be considered as efficient market anomalies that can’t be explained by CAPM. If two firms have the same expected earnings‚ the riskier stock will sell at a lower price and lower P/E ratio. Thus the low P/E stock will have higher expected returns. P/E acts as a useful additional descriptor of risk‚ and will be associated with abnormal returns if the CAPM is used to establish benchmark performance. CAMP does not account for all risks. b. Book-to-market effect
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companies not necessarily utilizing the NPV method or the CAPM in their capital budgeting and investment evaluation processes. This paper presents results of a survey conducted among the companies listed on the Helsinki Stock Exchange. The results show that the Finnish companies still lag behind US and Swedish companies in their use of the NPV‚ and the IRR method‚ even though it has become more commonly used during the last ten years. CAPM is used in surprisingly few companies‚ and 27 percent of
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Nike Inc. – Cost of Capital & Stock Valuation Steven Seagal George Clooney Brad Pitt Background Nike Inc’s share price has declined considerably over the past few years and Kimi Ford‚ fund manager of NorthPoint Lager-Cap Fund‚ was considering investing in the stock. Nike was looking to revitalize itself by addressing both top-line growth and operating performance. The goal was to improve revenues that had plateaued‚ and increase profits that had decreased over the years. One
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The Risk and Return of Venture Capital John H. Cochrane1 Graduate School of Business‚ University of Chicago March 19‚ 2004 School of Business‚ University of Chicago‚ 1101 E. 58th St. Chicago IL 60637‚ 773 702 3059‚ john.cochrane@gsb.uchicago.edu. I am grateful to Susan Woodward‚ who suggested the idea of a selection-bias correction for venture capital returns‚ and who also made many useful comments and suggestions. I gratefully acknowledge the contribution of Shawn Blosser‚ who assembled the
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Cost of Capital at Ameritrade Christoph Schneider Ross School of Business Basic assumptions Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) 1997 35.5% 0.25 0.00 0.00 1996 39.4% 1995 35.1% Average 36.7% Comparable companies’ βE Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) Discount Brokerage Firms Charles Schwab Quick & Reilly Waterhouse Securities 1997 35.5% 1996 39.4% β E from Jan’92-Dec’96 2.30 2.20 β E from all months 2.35 2.30
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Stock Information a. IBM’s Beta = 1.64 b. IBM’s current annual dividend = $0.80 c. IBM’s 3-year dividend growth rate (g) = 8.2% d. Industry P/E = 23.2 e. IBM’s EPS = $4.87 3. With the information you have‚ use the CAPM to calculate IBM’s required rate of return or ks. CAPM: ks = RF +{ (kM Krf) x Beta} = ks = 4.78% + {7.5% x 1.64) = 17.08% ks = 17.08% 4. Use the GCM to find the current stock price for IBM. We will call this the theoretical price or Po. D1 = D0 x (1 + g) =
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