| | 8.72% | 1.4% | 10.1200% | Contract Services | | 6.9% | 1.8% | 8.700% | Debt part of WACCMAR = (1-TC)(RD)(WD) = (1-.441)(.1025)(.6) = 3.44% Cost of Equity RE = CAPM = RF + (RM – RF) Determining a risk-free rate: We always want to use duration matching;
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Advanced Investment Raphaël Le Hoang 1) DFA description and beliefs about efficient market Dimensional Investment Advisors (DFA) is a passive investment firm founded in 1981‚ headquartered in Santa Monica‚ California. The founders of the company‚ Booth and Rex Sinquefield‚ were two former students
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Google Inc is a technology company that builds and provides products and services that organise information and make it universally accessible and useful to the general public‚ and it has arguably become a need in the everyday lives of people. As something that initially started as a research project for Stanford digital library‚ the concept began in march 1996 by Larry page and Serge Brin. the goal was to develop the enabling technologies from a single‚ integrated and universal digital library
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a. Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows‚ incremental profits‚ total free cash flows‚ or total profits? Caledonia should focus on cash flows‚ not accounting profits. Free cash flows are able to be reinvested‚ whereas accounting profits are shown when they are earned‚ not when the cash is actually received. The company should be interested in incremental after-tax cash flows
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First step in calculating WACC is to use the Capital Asset Pricing Model (CAPM) CAPM = Rf + Beta (MRP) Rf = Risk Free Rate Beta = Market figure as to how stock reacts to market fluctuations MRP = Market return rate – risk free rate Rf = 7.92% (Figured using 30-year Treasury Bond Yeild) Beta = 1.23 (Calculated using the average of all copetitors) MRP = 7.5% (Prime Rate in Exhibit 9) CAPM = 7.92% + 1.23(7.5%) = 7.92% + 9.23% = 17.15% WACC = Kd (1-t)
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Case Study of Cost of Capital at Ameritrade 1-a How can the CAPM be used to estimate the cost of capital for a real business investment decision? CAPM results can be compared to the best expected rate of return that investor can possibly earn in other investments with similar risks‚ which is the cost of capital. Under the CAPM‚ the market portfolio is a well-diversified‚ efficient portfolio representing the non-diversifiable risk in the economy. Therefore‚ investments have similar risk if they
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Fama-French findings? Do they make sense? Should we expect small stocks to outperform large stocks in the future? And‚ should we expect value stocks to outperform growth stocks? What did Fama and French discover about the CAPM and beta? How do you reconcile the empirical findings with the CAPM theory? 3. Discuss DFA’s trading strategy. How does it work‚ and what are the costs and benefits? Can DFA keep the competitive advantage in the future? Why don’t competitors emulate DFA’s approach? 4. What are DFA’s
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return? 0% 5% 13% none of the above 8. According to the CAPM (capital asset pricing model)‚ the security market line is a straight line. The intercept of this line should be equal to (Points: 1) zero the expected risk premium on the market portfolio the risk-free rate the expected return on the market portfolio 9. According to the CAPM (capital asset pricing model)‚ the security market line is a straight line. The slope of this
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Question (2010/2011 Exam – Q7 (section B)): The Capital Asset Pricing Model holds in economies satisfying a certain set of conditions. State four of these conditions and identify why they are essential for the model to hold (you are not expected to derive the entire model but you must identify the steps in the theory where these conditions play an important role). Under 7 sets of key assumptions‚ we know that all agents will hold a particular market portfolio‚ which consists of the same proportion
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Chinese steel mill contracts lasting for around 10 years. Baosteel was the first company to receive their iron ore. For the share valuation‚ the report uses the CAPM model to determine the prevailing cost of capital and also uses the dividend discount multistage model to predict the share price for the company. The components of the CAPM model (i.e. risk free rate‚ company beta‚ Market return and growth rate) are calculated and predicted on historical data. The valuation data is then compared with
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