Working Capital Management and Capital Budgeting Alexis A. Stoute University of Phoenix Finance for Business FIN/370 Terry Dowdy‚ PhD August 02‚ 2010 Working Capital Management and Capital Budgeting This week’s assignment focused on Working Capital Management and Capital Budgeting. As per the class syllabus‚ students were to formulate responses for questions 4-6A (Chapter 4) and 5-1A‚ 5-4A‚ 5-5A‚ and 5-6A (Chapter 5) from the book Financial Management: Principles and Applications
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CHAPTER 17 Capital Budgeting for the Multinational Corporation EASY (definitional) 17.1 The _______ is defined as the present value of future cash flows discounted at the project’s cost of capital minus the initial net cash outlay for the project. a) net present value b) equity-adjusted present value c) cost of capital d) value additive principle Ans: a Section: Net present value Level: Easy 17.2 The most desirable property of the NPV criterion is that it evaluates a) investments
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Hittle Company Ltd (Case Study) You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments‚ project X and Y. Each project has a cost of $10000 and the cost of capital for each project is 12 percent. The projects expected net cash flows are as follows: |Expected Cash flows | | | | | |year
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Group Case 1: Ameritrade – Cost of Capital Executive Summary: As a deep-discount brokerage‚ Ameritrade planned to improve its competitive position by price cutting‚ technology enhancements‚ and increased advertising in mid-1997. Before initiating the plan‚ Ameritrade needed know whether the investment returned more than it cost. We were hired to estimate the cost of capital correctly. The key question is to find suitable comparable firms to estimate Ameritrade’s asset beta‚ since it was a recently-listed
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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? WACC- The weighted average cost of capital is the rate (percentage) that a company has to pay to its creditors and shareholders to finance assets. It is the “cost” of their worth. Companies raise money from many different types of securities and loans and the various required returns are what make up the cost of capital. WACC is used to decide if an investment is worth
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shareholders’ value: the discounted cash flow techniques to evaluate potential investments allow the company to invest only in profitable projects. Therefore‚ it can maximize the use of its cash flow to gain profits. Optimize the use of debt in the capital structure: because firms with lower percentage of debt have higher value‚ Marriott uses this strategy to increase its value and thereby increase it profitability. Repurchase undervalued shares: By buying back its undervalued shares‚ Marriott can
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Summary Wanting to add Nike’s share to her portfolio‚ Kimi Ford asked her new assistant‚ Joanna Cohen‚ to estimate Nike’s cost of capital. Cohen‚ later‚ came up with the cost of capital of 8.4% that was contradicted to Ford’s cost of capital of 12%. This report points out flaws of Cohen’s assumption and recalculates the WACC to obtain the most accurate cost of capital. In the cost of equity calculation‚ we will use CAPM‚ the dividend discount model (DDM)‚ and the earnings capitalization model (ECM)
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brokerage sector. In march 1997‚ Ameritrade raised $22.5 million in an initial public offering. Management at Ameritrade is considering substantial investments in technology and advertising‚ but is unsure of the appropriate cost of capital. Estimating the cost of capital 1. Since we do not have the beta for Ameritrade‚ we need to find comparable firms for which we could compute the betas. There are several candidates in the case. Discuss which firms are most appropriate. Thus‚ the proportion
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1) Executive Summary Marriott needs to calculate hurdle rates which will be used in its investment project selection. The company chooses to use cost of capital as its hurdle rate. Since the company has three business divisions and the cost of capital in each division varies and differs from that of Marriott as a whole‚ each division needs to have its own hurdle rate. The reason behind this practice is the company’s strategy which focuses on growth. Using a single hurdle rate for the whole company
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FINAN 6121 – Corporate Finance Cost of Capital – The Walt Disney Company Team Titans B (Doug Horne‚ Shaun Hoggan‚ James Thackeray‚ Jeff Burg) The purpose of this project is to determine the weighted-average cost of capital (WACC) for The Walt Disney Company. According to The Walt Disney Company’s Form 10-K filing for the fiscal year ended September 29‚ 2012‚ “The Walt Disney Company‚ together with its subsidiaries‚ is a diversified worldwide entertainment company with operations in five business
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