its estimate of its cost of capital? Does this make sense? ...... 3 3. What is the weighted average cost of capital for Marriott Corporation? ..................... 4 4. What type of investments would you value using Marriott’s WACC? ........................ 6 5. If Marriott used a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business‚ what would happen to the company over time? ......... 7 6. What is the cost
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Overview This case study focuses on where financial theory ends and practical application of the weighted average cost of capital (WACC) begins. It presents evidence on how some of the most financially complex companies and financial advisors estimated capital costs and focuses on the gaps found between theory and application. The approach taken in the paper differed from their predecessors in several various respects. Prior published information was solely based on written‚ closed-end surveys sent
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Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. As the vice president of project financeof Marriott Corporation‚ I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s three divisions: lodging‚ restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate
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recommended to invest ● UBS Warburg/ CSFB recommended not to invest What is WACC? WACC methodology is used to discount future cash flows allowing us to use the information for present decisions that will benefit the company in the future. WACC is estimated using present and past information‚ therefore it varies depending on the information being used WACC set by investors and market ◦ Not by Managers The estimated WACC sets the least amount of returns that the investor needs in order to either
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Thus using the market rate to calculate CAPM you use the Beta and market risk premium which are both based on the market rate and more accurate. Finally‚ their company WACC of 9% that they have calculated is incorrect and given the above calculations‚ their WACC using CAPM would be: [5.28(.5)+14.6(.5)]=9.94% and their WACC using Dividend-growth would be:
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Ford Motor Company Valuation Business Case Stern Value Management Interview Vasishta Atmuri December 5‚ 2014 Ford Motor Co. Analysis| Stern Value Management Interview Introduction Ford Motor Co. manufactures and sells cars and is the sixth-largest car maker Stock Price in $ 20 1000000000 800000000 600000000 400000000 200000000 0 15 10 5 FINANCIAL HIGHLIGHTS Ticker F Date‚ as of 12/03/2014 Stock Price $16.01 P/E 10.47x Market Cap (mm) $61‚617 Dividend Yield Ford Motor Co. (NYSE:F)
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capital [WACC]. The estimation of Boeing’s WACC must be consistent with the overall valuation approach and the definition of cash flows to be discounted. Note that this process is a forward looking focus and is laden with uncertainty. It is how the assumptions are modeled that many costly mistakes can be made. While finding a rate of return for an individual project‚ it is important to remember that WACC is only appropriate for an individual project. The many factors affecting WACC are:
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for capital budgeting rather than Return on Investment (ROI) method and Payback Period method. Secondly‚ I calculate the Weighted Average Cost of Capital (WACC) which will be used as discount rate while calculating NPV. Then‚ I decide which rapid prototyping system company should invest as well as I compare the each expansion projects’ IRR with WACC to decide which projects should be invested and which should not. After deciding projects which should be accepted‚ I draw Investment Opportunity Schedule
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MBA 509 Recommended Chapter Questions These questions are the focus of what I am covering on the final exam. Understand the answers to these questions and should not be surprised by anything on the exam. Chapter 14: Capital Structure in a Perfect Market 14-5. Suppose Alpha Industries and Omega Technologies have identical assets that generate identical cash flows. Alpha Industries is an all-equity firm‚ with 10 million shares outstanding that trade for a price of$22 per share. Omega Technologies
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Question 1) 1) Discuss puzzles and anomalies 2) Discuss three forms of market efficiency Marketefficiency is a measure of the availability(to all participants ina market) of the information that provides maximum opportunities tobuyers and sellers to effect transactions with minimum transactioncosts. Types of Efficiency: Operational efficiency: It refers to thecost to buyers and sellers of transactions in securities on theexchange. This may be promoted by creating as much competitionbetween
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