Case Study II : Weighted Average Cost of Capital Introduction and objectives This paper aims at describing a way to compute the Weighted Average Cost of Capital (WACC). This method is often used by company management to determine the economic feasibility of different projects and thus to compute the NPV of a specific project by discounting cash-flows. The WACC determines the return that the company should generate to satisfy its debt-holders. For the company‚ it consists in a tool for projects
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Objective The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their company’s WACC as a starting datum to estimate the discount rate to use in the net present value analysis of new projects or of termination decisions. The student will later need to know the technique for application in some case study solutions. The project also develops student skills in using elementary financial
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TANMAY GUPTA tg2311 American Chemical Corporation Cost of Capital : Collinsville Investment [pic] Where: Re = cost of equity Rd = cost of debt E = market value of the firm’s equity D = market value of the firm’s debt V = E + D Tc = corporate tax rate D/V and E/V Ratio: Since the target debt ratio of Dixon is given to be about 35%‚ we assume the target D/V ratio for Colinsville investment to be the same. Hence the E/V ratio
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WACC Example: A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also‚ the firm: - has 1‚000‚000 common shares outstanding - current price $11.25 per share - next year’s dividend expected to be $1 per share - firm estimates dividends will
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Approach is to analyze financial maneuvers separately and then add their value to that of the business. | APV always works when WACC does‚ and sometimes when WACC doesn’t‚ because it requires fewer restrictive assumptions | Some limitations amount to technicalities‚ which are much more interesting to academics than to managers. | | Less Prone to serious errors than WACC. | Income from stocks- as opposed to bonds- may be taxed differently when the investor files a personal tax return : this usually
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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? 1.1 The definition of WACC Weighted average cost of capital(WACC)‚ is a weighted-computational method of analyzing the cost of capital based on the whole capital structure of a firm. The result of WACC is the rate a firm use to monitor the application of the current assets because it represents the return the firm MUST get. For example this rate could
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The Case Study as a Research Method Uses and Users of Information -- LIS 391D.1 -- Spring 1997 Introduction Case study research excels at bringing us to an understanding of a complex issue or object and can extend experience or add strength to what is already known through previous research. Case studies emphasize detailed contextual analysis of a limited number of events or conditions and their relationships. Researchers have used the case study research method for many years across a variety of
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provides an overview of logistics & SCM. The Course uses readings‚ Lectures‚ case studies and industry examples. Faculty Name: Dr. Neeraj Dixit Contact No. 022-61378353 Email ID:dixitneeraj20012003@yahoo.co.in Methodology: Theory Sessions using LCD PowerPoint presentations with application of theoretical concepts to real life situations‚ Discussion of recent Industry examples‚ analysis of case studies‚ students encouraged to participate in class with their opinions and experiences
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...............................................................................79 3.3. The case study strategy............................................................................................................83 3.4. Research design .........................................................................................................................88 3.4.1. The selection of the case study sites......................................................................................88
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items from the chapter (or items you have a question about) -- 1 paragraph max. • • p.8 Case Study Questions & MIS in Action: - type answers to questions 1‚ 2‚ 3‚ and 4 from Case Study Questions (1 to 2 sentences each) - type answers to MODIFIED questions 1 and 2 from MIS in Action • p.19 Case Study Questions & MIS in Action – type answers to questions 1‚ 2‚ and 3 from Case Study Questions (1 to 2 sentences each) – type answer to questions 1 from MIS in Action (max 1
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