a one-year estimated expected return. Therefore‚ we chose to use the geometric mean to coincide with the choice to use the 20-year yield on U.S. Treasuries‚ which is 5.9 percent. Next‚ we had to decide on a beta to use for Nike Inc. for use in the CAPM approach. The logical choice was to use the average (0.80) to account for the large fluctuations seen in Nike’s historic betas. We felt that the YTD beta was a reflection of current business practices‚ but the goal of Nike Inc. was to look forward
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Running head: INVESTMENT ANALYSIS Investment Analysis Paper on Netflix‚ Inc. (NFLX) 1 INVESTMENT ANALYSIS !2 Investment Analysis Paper on Netflix‚ Inc. (NFLX) Netflix‚ Inc. (NFLX) is a publicly-traded‚ retail entertainment company that offers television programs and movies to customers via direct-to-door delivery through its DVD service with over 100‚000 titles‚ and through its Web-based streaming service. The company’s forwardlooking strategy includes efforts to increase access
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One of the most widely used concepts in finance is that shareholders require a risk premium over bond yields to bear the additional risks of equity investments. While models such as the two-parameter capital asset pricing model (CAPM) or arbitrage pricing theory offer explicit methods for varying risk premia across securities‚ the models are invariably linked to some underlying market (or factor-specific) risk premium. Unfortunately‚ the theortical models provide limited practical advice on establishing
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interest expense by the company’s average debt balance. This is an issue because she did not take into account the current yield on publicly traded Nike debt. Another issue that should be addressed is the calculation of the equity cost of capital. Using CAPM‚ Cohen took a 20 year Treasury bond as her risk free‚ the average Beta for the last 6 years‚ and a geometric mean for market premium. Also‚ Cohen calculated the book value of equity and debt instead of using market values. In my analysis‚ I will argue
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The text here presented is an essay written by William K. Wimsatt‚ Jr. which was included within his book named The Verbal Icon: Studies in the Meaning of Poetry published in 1954. The author introduces to us the concept of “The intentional fallacy” which describes the error of interpreting a work of art by second-guessing the intention of its author in creating it. In reading a poem the reader must lay aside all the possible intentions of the author and concentrate on the poem itself in order to
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NBL’s beta was 1.074 indicating the company’s stock price is .074% more volatile than the market. Whereas XOM’s Beta was 0.8444 which indicates the firm’s stock is 15.56% less volatile than the market. Furthermore‚ the Capital Asset Pricing Model (CAPM) is used to determine an investor’s required rate of return from investing in a company’s common stock (Shapiro‚ 2014). Through using a risk free rate of return of 2.86% and a return on the market portfolio of 2.725%‚ as well as the beta for each
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Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows Richard S. Ruback* This paper presents the Capital Cash Flow (CCF) method for valuing risky cash flows. I show that the CCF method is equivalent to discounting Free Cash Flows (FCF) by the weighted average cost of capital. Because the interest tax shields are included in the cash flows‚ the CCF approach is easier to apply whenever debt is forecasted in levels instead of as a percent of total enterprise value. The CCF method retains
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The Place of Stunted Ironwood Trees by Dr. David Crandall introduces the world of the Himba living in the country of Namibia. These people have interesting and unique beliefs that are based on an imaginary world or way of thinking. This imaginary world has a foundation in their belief in the god Mukuru and their belief that other supernatural forces play a part in their daily lives. These beliefs contribute to how Himba perceive life‚ judge moral character‚ and react to the world around them. The
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Mock Exam Questions Set 1 1. Identify and briefly describe the three forms of the efficient market hypothesis. The three forms of the efficient market hypothesis (EMH) are: The weak form. The weak form asserts that current stock prices fully reflect all available security market data The semi strong form. The semi strong form of the EMH asserts that public security prices fully reflect all information (including security market data). The strong form. The strong form of the EMH asserts that
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Investment Science Chapter 3 Dr. James A. Tzitzouris 3.1 Use A= 1− rP 1 (1+r)n with r = 7/12 = 0.58%‚ P = $25‚ 000‚ and n = 7 × 12 = 84‚ to obtain A = $377.32. 3.2 Observe that since the net present value of X is P ‚ the cash flow stream arrived at by cycling X is equivalent to one obtained by receiving payment of P every n + 1 periods (since k = 0‚ . . . ‚ n). Let d = 1/(1 + r). Then ∞ P∞ = P k=0 (dn+1 )k . Solving explicitly for the geometric series‚ we have that P∞ = Denoting
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