‘Ameritrade’ on SloanSpace contains all of the data in Exhibits 1 – 6 of the case‚ as well as additional data for the Fama-French three-factor model. 1. What factors should Ameritrade management consider when evaluating the proposed strategy? 2. Calculate Ameritrade’s debt-to-value ratio using both the book value and market value of the firm’s equity. How does Ameritrade’s debt-to-value ratio compare to that of other discount brokerage and investment service companies in Exhibit 4? In general terms
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one assumption must be met: this program will not change the debt-equity ratio of AirThread. Under LBO approach‚ it’s impossible. * So we decide to use APV method to value AirThread. WACC method is not appropriate here‚ but we still need to calculate the weight average cost of capital (WACC) of AirThread. Approach to value AirThread before considering any synergy 1. Develop a projection of unlevered free cash flow for AirThread. * Discount AirThread’s unlevered free cash flows at unlevered
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Dividend. (n.d.). Stock Dividend Data. Retrieved April 18‚ 2014‚ from Dividend: http://www.dividend.com/dividend-stocks/consumer-goods/beverages-soft-drinks/ko-coca-cola-co/#dividend-growth-history Investopedia. (n.d.). Capital Asset Pricing Model - CAPM. Retrieved from Investopedia: http://www.investopedia.com/terms/c/capm.asp Investopedia. (2104‚ April 18). Dividend Discount Model - DDM. Retrieved from Investopedia: http://www.investopedia.com/terms/d/ddm.asp Investopedia. (n.d.). Retun on Equity
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Ameritrade if the proposed upgrades and additional advertising will generate earnings growth and by how much (additional money for shareholders as well). 2. How can the Capital Asset Pricing Model (CAPM) be used to estimate the cost of capital for real (not financial) investment decision? The CAPM states that an investor’s expected rate of return equals the risk free rate plus the market risk premium weighted by beta. Managers are expected to make decisions that add to shareholder value. If the
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If the divisional projects were deemed to be of similar risk‚ using the weighted- average cost of capital (WACC) would be justified. The WACC would therefore be okay to use. 2. How should Stephanie go about figuring out the cost of debt? Calculate the firm’s cost of debt. Estimated YTM = [Interest + (FV-MV)/n ]÷ (FV+MV)/2 = [100+(1000-915)/25] ÷ (1000+915)/2 = 0.1080 0r 10.80% After-tax rd = 10.80% (1-0.34) = 7.13% 3.
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In fact‚ at least in theory‚ the offsetting could eliminate your risk entirely. The table below gives the returns on the two stocks on the assumption that rainy‚ normal and sunny weather are equally likely events (l/3 probability each). Let us calculate the expected return and standard deviation of the two stocks individually and of the portfolio of 50% Banlight and 50% Varsha stocks. 4 Diversification –Risk Reduction 5 Standard Deviation - Computation 6 Standard Deviation - Computation
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Inc. Many issues should be addressed regarding Joanna Cohen’s WACC calculation. First‚ to calculate the debt cost of capital‚ Cohen divided the total 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
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Unleveraged Cash Flow (UFCF) from 2008-2012. As well we used Depreciation & Amortization‚ Capital Expenditures and the assumptions established in AirThread Connections Exhibit 1 case to make the adjustments that Working Capital needed to fully calculate the Unleveraged Cash Flows from 2008 – 2012. Revenue Projections | | 2008 | 2009 | 2010 | 2011 | 2012 | Service Revenue | | 4‚194.33 | 4‚781.54 | 5‚379.23 | 5‚917.15 | 6‚331.35 | Equipment Sales | | 314.77 | 358.84
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standard methodology: WACC=EVre+DVrd1-τ In order to calculate each WACC‚ Venerus knew he would have to measure all of the constituent parts for the 15 projects: * the cost of debt * the target capital structure * the local country tax rates * an appropriate cost of equity Venerus feared the use of a World CAPM might yield artificially low costs of capital. Similarly‚ Venerus did not advocate the use of a “Local CAPM” where beta measured the covariance of a project’s returns
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To : President‚ Marriott Corporation From : FLO299 Subject : Marriott Corporation – The Cost of Capital Date : April 6‚ 2010 The Importance of the Cost of Capital The cost of capital is important as it forms the basis for Marriott’s investing and financial decisions. By understanding and knowing the cost of capital‚ Marriott is able to select relevant investment projects for the company‚ determine incentive compensation‚ and repurchase undervalued shares when needed. The returns
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