has asked you to calculate HydroTech’s WAAC in preparation for an executive retreat. Too bad‚ you are not invited‚ as water pumps and skiing are on the agenda in Sun Valley‚ Idaho. At least you have an analyst on hand to gather the following required information: 1. The risk-free rate of interest‚ in this case‚ the yield of the ten-year government bond‚ which is 6%. 2. HydroTech’s: a. Market Capitalization (its market value of equity)‚ $100 million. b. CAPM beta‚ 1.2
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retailer‚ one should be an automobile manufacturer‚ and one should be a restaurant or food producer. 2. Obtain the closing price‚ the change in price from the previous day‚ and the beta. 3. Calculate the return on holding the stock for a day (this should be the change in price over the closing price). 4. Calculate a portfolio return with weights of 0.25 for
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to be the minimum overall required rate of return that the firm will keep. We disagree with Johanna Cohen’s assessment of Nike due to two factors. The first distinction we have made is in the way in which Cohen calculates the cost of debt. As she stated in her memo‚ Cohen calculates the cost of debt by taking the total interest expense for the year and dividing it by the company’s average debt balance; whereas we calculated the yield to maturity (YTM) of a twenty year debt using the 6.75% coupon
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The comparison of underlying assumptions and conclusions of the CAPM and the APT models Prepared by: Professor: Prague‚ 2013 Introduction This paper studies the characteristics and application of valuation models of financial assets CAMP and APT. The methodology of measuring financial assets emerged in the second half of the 20th century‚ the most effective in practice‚ are now pricing model of financial assets as a CAPM and its subsequent conversion APT. With the pricing model of
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(cost of preferred stock) + (% of common equity) * (cost of common equity) = wdrd(1-T) + wpsrps + wsrs Although the equation for WACC is comprised of three components‚ this case study primarily focuses on the Capital Asset Pricing Model (CAPM) for estimating the cost of equity. The reasoning behind
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Mercury Athletic Footwear Case Assignment Questions: 1. Is Mercury a good target for AGI? Discuss strategic fit of brands‚ products‚ customers‚ and distribution. Identify specific sources of value. Discuss AGI’s strengths/weaknesses compared with other bidders. I think Mercury is a good target for AGI: The brands--the AGI brands and logos are associated with a lifestyle that was prosperous‚ active and fashion-conscious. The Mercury brands are athletic and casual footwear. The products--AGI focused
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| Table of Contents Cost of Capital 2 Value of Equity 2 Cost of Equity 2 CAPM Model 2 Dividend Growth Model 3 Value of Debt 3 Cost of Debt 4 WACC (Weighted Average Cost of Capital) 4 Comparison to Joanna Cohen’s Analysis 4 Financial Statement Analysis 5 Nike Inc. 5 Financial Ratios 6 Leverage Ratios 6 Efficiency Ratios 6 Liquidity Ratios 7 Profitability Ratios 7 Valuation Ratios 7 Conclusion 8 Appendix A – Ratio Calculation 9 Leverage Ratios 9 Efficiency Ratios 9 Liquidity Ratios
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interest rate into account‚ PPC’s actual cost of capital would be calculated as: [.08(1-.34)]= 5.28%. PPC has simply been using 10% (their equity growth rate) as their cost‚ but must instead either use the CAPM model to calculate their cost of equity‚ or the Dividend-growth model. If they use the CAPM model‚ which is the most accurate‚ their cost of equity will be: .078+.8(.1625-.078)=14.56%. Or they can use the Dividend-growth model and their cost of equity would be: (2.7/63)+.1=14.29%. Both are
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FINC5001 GROUP ASSIGNMENT FINAL REPORT Executive Summary In this group assignment‚ by historical data analysis‚ we evaluate the two approaches Mean-Variance and CAPM specific in the stock risk estimation for minimize risk investor. The two approaches are consistent in the stock risk‚ but differ in the risk of portfolios we construct. Through our observation and the approach assumption analysis which refer to academic literatures‚ the former one represents more reasonable result ultimately as
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What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2 If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and be prepared to justify your assumptions. 3 Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization ratio. What are the advantages and disadvantages of each method? Introduction : Solution Question 1 :
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