we can calculate after tax cost of debt: After tax cost of debt = Before tax cost of debt x ( 1 – T) = 7.16% (1 – 38%) = 4.44% * Cost of Equity We agree with Joanna’s decision to use CAPM to estimate the cost of equity because we considered CAPM approach has strong theoretical foundation. We used the current yield on 20-year Treasury bonds = 5.74% as risk free rate‚ the compound average premium of the market over treasury bonds = 5.9% as risk premium‚ and average
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Midland Energy Resources Case Analysis Midland Energy Capital Planning Model • Fund significant overseas growth • As domestic natural resources dwindle‚ overseas investments are the main drivers of growth for Midland. These investments are analyzed and evaluated is US dollars (foreign cash flows are converted to US dollars) and have a US dollar discount rate applied to them. In 2006‚ 77.7% of Midland’s total earnings from equity affiliates came from non-US investments. • Invest in value creating
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four classifications of adverse drug reactions. A. Toxic Reaction: - Extension of the pharmacologic effect resulting from effect on target organs‚ B. Side Effect: -Dose- related reactions - Drug acts on non target organs C. Idiosyncratic Reaction: - Abnormal Drug Response D. Drug Allergy: - Immunologic Response 2. Describe the problem with identifying teratogenic agents. - Although more information is now available about safety of certain drugs in pregnant women‚ sufficient
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UNDERSTANDING THE TIME VALUE MONEY FORMULA TIME VALUE OF MONEY TRIDENT UNIVERSITY INTERNATIONAL AVIE MARIE JOHNSTONE STRATEGIC CORPORATE FINANCE FIN501 MODULE 2 SESSION LONG PROJECT PROFESSOR WALTER
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AMERICAN EXPRESS Industry Analysis • Flag bearer company for credit card business. • Headquartered in Three world financial Center‚ Manhattan‚ New York City‚ New York‚ United States and dates back to 1850. • It allows secured transaction‚ more portability of money‚ easy purchase and increased business volume. • Uses its own payment gateway names Amex Secured Pay. • Almost 24% of the total dollar value of transaction in USA is credited to Amex cards. • Top 20 most admired brands of the world.
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Introduction: Midland Energy Resources‚ Inc. is a global energy company with its operations in three divisions – Oil and gas exploration‚ Refining and Marketing and Petrochemicals. The company has been there for 120 years and in 2007 had more than 80‚000 employees. It has been a very profitable company with reported operating revenue of $248.5 billion and operating income of $42.2 billion in 2006. The primary goals of Midland’s financial strategy are to fund overseas growth‚ invest in value-creating
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profitable or not. 2. Using the data provided in the case‚ estimate Lex’s cost of equity under its future target capital structure for the consolidated company. Cost of equity can be calculated in 3 different ways (1) CAPM‚ (2) DCF‚ (3) Own-Bond-Yield-Plus-Judgemental-Risk Premium. CAPM will be used in this study since we have idea about market premium and risk free rates. Re=rf +(rm– rf) * β Where‚ Re = The required rate of return on equity rf = The risk free rate (rm – rf )= The market risk premium
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efficient market hypothesis and based on the collective effort of Sharpe‚ Treynor‚ Lintner‚ and Mossin (see Perold‚ 2004)‚ Capital Asset Pricing Model (CAPM) was developed in 1960s as a modified form of Sharpe Ratio in evaluating financial assets returns and prices versus risks in the form of: E (ri) = rf + ¦Âi [ E(rm) ¨Crf ] . From the CAPM model‚ Jensen (1968) derive his risk-adjusted measure of portfolio performance (now known as "Jensen ’s Alpha").The formula given below demonstrates the
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Unit 4 Assignments Security A has an expected rate of return of 6%‚ a standard deviation of returns of 30%‚ a correlation coefficient with the market of - 0.25‚ and a beta coefficient of - 0.5. Security B has an expected return of 11%‚ a standard deviation of returns of 10%‚ a correlation with the market of 0.75‚ and a beta coefficient of 0.5. Which security is more risky? Why? In order to answer this question you need to outline Security A and Security B Security A Expected rate of return
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denoted by Rm. * Then‚ BETA is calculated by dividing Co-variance by variance of market. * Now‚ The CAPM model is applied to calculate Cost of capital of Equity i.e. Ke= Rm-(Rm-Rf) BETA. The risk-free rate is assumed to be 7.5%. * The capital structure of maruti Suzuki is drawn and subsequently the WACC is calculated taking cost of capital which has been calculated using CAPM model. * Now‚ we apply the dividend discounting model to calculate the present value of the share;
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