company’s net income (Exhibit 3). Its largest division is R&M with the Petrochemical division being the smallest. The primary goals of Midland’s financial strategy are to fund substantial overseas growth‚ invest in value-creating projects‚ achieve an optimal capital structure‚ and repurchase undervalued shares. To accomplish these goals‚ Midland must calculate an appropriate cost of capital that will allow reasonable valuations of their strategies. In funding overseas growth‚ Midland must use its cost
Premium Finance Weighted average cost of capital Capital
Course review Ale Previtero AGENDA 1. Overview of valuation cases 2. WACC • Cost of equity‚ choosing beta‚ choosing weights‚ when to use premium. 3. Valuation using Discounted Cash Flow (DCF) • Key assumptions‚ Terminal Value‚ sensitivity 4. Valuation using multiples • Key points‚ pros & cons‚ choosing comparable firms • Which multiple? Which year? Example. 5. Financing an Acquisition • Determine price. Financing. Making a decision. 6. Final exam • How to review‚ how
Premium Stock market Discounted cash flow Fundamental analysis
that includes one. ◆ Use the replacement chain and equivalent annual annuity methods to compare projects with unequal lives‚ and explain when you might use one method over the other. ◆ List the steps a firm goes through when establishing its optimal capital budget in practice. Lecture Suggestions This chapter covers some important but relatively technical topics. Note too that this chapter is more modular than most‚ i.e.‚ the major sections are discrete‚ hence they can be
Premium Net present value
Answer Selected Answer: Minimize the weighted average cost of capital (WACC). Correct Answer: Minimize the weighted average cost of capital (WACC). Question 23 2 out of 2 points Business risk is affected by a firm’s operations. Which of the following is NOT associated with (or does not contribute to) business risk? Answer Selected Answer: The extent
Premium Dividend Stock market Finance
Marriott invested in projects that increased shareholder value. The company used discount cash flow techniques to evaluate projects that could be profitable. Third‚ Marriott optimized the use of debt in the capital structure. The company determined the optimal amount of debt based on its ability to service the debt. As of 1987‚ Marriott had $2.5 billion debt which accounted for 59% of its capital. Lastly‚ Marriott repurchased undervalued shares. On regular bases‚ Marriott calculated a “warranted equity
Premium Weighted average cost of capital Debt Net present value
Review Case‚ Marriott Corporation: The Cost of Capital (9-298-101). The case takes a detailed look at Marriott’s financial strategy and performance in efforts to determine the appropriate capital structure for the company. The analysis will further provide methodology for calculating Marriott Corporation’s weighted average cost of capital (WACC)‚ as well as an assessment of Marriott’s investments that continuously aide the corporation in achieving a competitive advantage over their top industry competitors
Premium Weighted average cost of capital Internal rate of return Net present value
Week 4 Discussion Questions • What are main elements in calculating the cost of capital? How does an increase in debt affect it? How do you identify an organization’s optimal cost of capital? • The main elements in calculating the cost of capital are cost of debt‚ cost of equity‚ preferred stock and common stock. • An increase in debt indicates a higher risk which can increase the required rate of return which raises the cost of capital. Higher debt can also accrue additional costs. • By mixing
Premium Finance Economics Investment
Asset Pricing Model (CAPM). The Weight Average Cost of Capital (WACC) and how Pfizer uses this method will be reviewed. Additionally‚ each phase of developing and creating new value added drugs role financially will be addressed. According to Parrino‚ Kidwell and Bates (2012)‚ the capital asset pricing model describes the relationship between an associated risk and the expected return on an asset. Pfizer uses the CAPM to determine its cost of capital or the weighted average of the costs of debt
Premium Finance Weighted average cost of capital Corporate finance
calculating the cost of capital? How would an increase in debt affect it? How would you identify an organization’s optimal cost of capital? Is the cost of capital increasing or decreasing for most companies? What is meant by Weighted Average Cost of Capital (WACC)? What are the components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term
Premium Net present value Investment Weighted average cost of capital
Average Cost of Capital (WACC) as the hurdle rate‚ and use it to discount the appropriate cash flows when evaluate an investment project. Our goal is to determine the WACC at every division base on the information that the case has provided. First of all‚ we will determine the cost of debt‚ cost of equity and the capital structure for the whole company. Then we will compute for the tax rate‚ and calculate the WACC for the whole company. After this‚ we will determine the Risk-free Rates‚ Risk
Premium Weighted average cost of capital Rate of return Marriott International