WACC Basic steps: 1. Identify (equity at the target debt-equity ratio 2. Identify appropriate estimate of risk-free rate rf B. C. 3. Identify appropriate estimate of market risk premium (rm – rf) D. 4. Use CAPM to estimate requity E. 5. Identify appropriate measure of rdebt F. 6. Use formula: rWACC = (1-TC)[D/(D+E)]rdebt + [E/(D+E)]requity 1. Identify (equity at the target debt-equity ratio Note that (equity at current debt-equity
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CHAPTER 9 THE COST OF CAPITAL (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Capital components Answer: c Diff: E [i]. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? a. Long-term debt. b. Common stock. c. Accounts payable and accruals. d. Preferred stock. Capital components Answer: d
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Cheryl Mew FINS2624 – Portfolio Management Semester 1‚ 2011 LECTURE 1 – BOND PRICING WHAT IS A BOND? A bond is a claim on some fixed future cash flows. A commonwealth government bond (CGB) is a bond which pays semi-annual coupons‚ in which the maturity date/ coupon payment date is on the 15th of every month. A zero coupon bond is a bond with no coupons. The important information of a bond: 1. 2. 3. 4. 5. 6. • 1. 2. Transaction date: T Settlement date:T+2 Coupon payment dates Maturity date
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1) Why are we computing the Cost of Capital? Why is it important? A “Firm” will want to know the overall or average required rate of return on its aggregate investments. The Cost of capital allows us to set a benchmark that new projects need to meet in order to be viable. In the case of a “Project” it is a way to calculate the minimum required rate of return for an investment depending on its riskiness of its cash flow therefore it is a way to; a) Evaluate the Investment Decision
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Question 1 Call options on XYZ Corporation’s common stock trade in the market. Which of the following statements is most correct‚ holding other things constant? Answer Correct Answer: The price of these call options is likely to rise if XYZ’s stock price rises. Question 2 Other things held constant‚ the value of an option depends on the stock’s price‚ the risk-free rate‚ and the Correct Answer: All of the above. Question 3 Which
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Report‚ 2009). This report uses mean-variance method and CAPM approach‚ to form the portfolio combined two stocks TLS and ANN. By justifying five years (2005-2010) monthly data in using mean variance method to calculate the expected return (ANN 0.007488‚ TLS -0.004441)‚ standard deviation (ANN 0.076531‚ TLS 0.053729)‚ as well as beta (ANN 0.64‚ TLS 0.31). And then one year (2009) daily data to determine portfolio expected return in using CAPM method. With MV method‚ based on the justification and limitation
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assumption that Giordano shares a similar cost of capital to Esprit is invalid. Taking a CAPM approach to calculate re E(re) = rf + β (E(rm- rf)) β = .61 (as listed by reuters) rf = .0258 rm= .2228 (as determined in appendix A through a 2 year average) E(re) = .0258 + .61 (.2228 - .0258) = .146 Calculate PT using re= .146 PT= 3.18/ (.146 - .12029) = 123.69 Therefore the stock price using a CAPM valuation is $123.69 Findings The calculated value of Esprit at $123.69/share is over the
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HW#4 Assigned on Friday‚ November 16‚ 2012 / Due on Thursday‚ November 29‚ 2012 Please turn in a hard-copy of your homework to the class. Show all your work to receive full credit for each question. 1. Suppose a stock had an initial price of $91 per share‚ paid a dividend of $2.40 per share during the year‚ and had an ending share price of $102. Compute the percentage total return. What was the dividend yield? The capital gains yield? 2. Suppose you bought a 7 percent coupon bond one
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BAYER AG A Financial Analysis Executive Summary This paper tries to analyse the financial strength of Bayer AG and the other aspects associated with its capital structure and dividend policy. The organisation has been trying to change its financial structure to a management-driven one. This is evident from the reduction in the share capital of the organisation and the rise of debt capital‚ which it has been using efficiently to reduce its tax burden and control the overall
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1. What are some complications Johns outlines that are related to joining a discourse community? Still now we talk about not intended discourse community but from now on‚ we talk about discourse community that people voluntary participate in discourse community. There are some factors to join the discourse community‚ voluntary. They choose to enter the discourse community because of interests‚ politics or their professions. They hope to extent acknowledges and professional experience. Depending
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