The Armstrong Production Company is an industry-leading firm in the field of manufacturing synthetic building materials for homes and commercial structures‚ based near St. Louis. Armstrong was fortunate in its initial stages to quickly secure inexpensive funding in the form of developmental loans issued by the State of Illinois‚ and thus was able to break even within three years of its founding in the early 1970s. Able to pour resources into its research and development segment‚ riding on the increasing
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| - | 0.90 | 0.70 | β relevered (βl) | 1.37 | 1.09 | 1.27 | 1.29 | Cost of equity (Re) | 18.90% | 17.05% | 18.15% | 18.30% | Cost of debt (Rd) | 9.03% | 9.39% | 9.16% | 9.43% | Effective tax rate (t) | 43.68% | 43.68% | 43.68% | 43.68% | WACC | 8.68% | 12.35% | 12.69% | 10.51% | Overall‚ Contract Services division has the highest weighted average cost of capital and Lodging division has the lowest. Since different lines of business are different in nature‚ this estimation is reasonable
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Contents 1. Introduction 1 2. Valuation Methodology 2 2.1. Discounted Cash Flow 2 2.2. Terminal Value 3 2.3. Weighted Average Cost of Capital 3 2.3.1 Cost of Equity 4 2.3.2 Cost of Debt 4 2.4. Free Cash Flow 4 3. Calculation of WACC for Kia motors 5 4. Calculation of Free Cash Flow for Kia motors 5 5. Estimation of the value for Kia motors at the end of 2011 6 6. Conclusion 6 References 7 Appendix -1 8 Financial Highlight 8 Appendix -2 9 Consolidated Statements
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the last five years of monthly return data. The resulting corporate WACC is 10.22%. However‚ new investments in the different divisions requires the application of a hurdle rate that reflects the business risk of that particular unit‚ rather than the overall corporate hurdle rate‚ which is primarily applicable to corporate capital expenditures‚ such as headquarters and IT support systems. The table below summarizes the WACC for each Marriott division based on its mix fixed and floating rate
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Torrington from Ingersoll-Rand. This reports provides the needed information on Torrington’s worth‚ price at which Torrington could be acquired and the acquisition strategies to negotiate its deal. The evaluation uses the discounted cash flow analysis using WACC to calculate the value of Torrington worth with synergies. The value turned out to be more than the estimated minimum value of the target. The final recommendation is to proceed with the acquisition as planed which would be beneficial to the Timken
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Introduction Forest Labs is a pharmaceutical company that develops‚ manufacture and sell branded forms of ethical drug products most of which require a physician’s prescription. Most of the drags are marketed directly‚ to physicians with a mission that a CEO and President of Forest Labs Howard Solomon in his letter to shareholders defines as “to increase shareholder value by obtaining and successfully marketing more and more fine pharmaceutical products”. Forest`s product pipeline highly depends
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Assignment for Corporate Finance Assignment Major : Group : Name : 1 i) How much business risk does Hill Country face? Hill Country Snack Foods Company manufactures‚ markets‚ and distributes snack foods and frozen treats throughout the United States. Hill Country is overall well performed company. Sales‚ Net Income‚ ROE and ROA had increased at a steady rate. Company mainly focused on maximizing the shareholder value by the
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following events would REDUCE its WACC? a. The market risk premium declines. b. The flotation costs associated with issuing new common stock increase. c. The company’s beta increases. d. Expected inflation increases. e. The flotation costs associated with issuing preferred stock increase. 2. Duval Inc. uses only equity capital‚ and it has two equally-sized divisions. Division A’s cost of capital is 10.0%‚ Division B’s cost is 14.0%‚ and the corporate (composite) WACC is 12.0%. All of Division A’s
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Exercise Cost of Capital 1. Lancaster Engineering Inc. (LEI) has the following capital structure‚ which is considers to be optimal: Debt 25% Preferred stock 15 Common equity 60 100% LEI’s expected net income this year is $34‚285.72‚ its established dividend payout ratio is 30 percents‚ its federal-plus-state tax rate is 40 percent‚ and investors expect earnings and dividends to grow at a constant rate of 9 percent in the future. LEI paid a dividend of $3.60 per share
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Seems to me this will be a good deal for shareholders‚ and they are the one’s I’m working for. In fact‚ it would be dumb not to go into debt.” Your job is to help this CFO determine whether to borrow or not. Assume perfect capital markets with no taxes. Also‚ to make life easier assume all cash flows are perpetuities. Determine the EPS‚ the return on equity‚ and the value of the firm under the two scenarios. How do you interpret the results? 3 4 Problem 2 Midcap Corporation (MC) will
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