financed. By assuming the project is all-equity financed‚ the cost of equity (un-levered cost of capital) should be used as the discount rate in order to calculate the NPV of the project‚ because the cost of the asset will equal to the cost of equity in regardless of the capital structure. Given the information on comparable firm asset betas‚ a risk free rate and a market risk premium‚ the cost of capital is calculated as 15.8% based on the CAPM method.( rA = rE = rf + β*r(MP)‚ rA = rE =5.0% + 1.50(7
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Corporate finance P. Frantz‚ R. Payne‚ J. Favilukis FN3092‚ 2790092 2011 Undergraduate study in Economics‚ Management‚ Finance and the Social Sciences This subject guide is for a Level 3 course (also known as a ‘300 course’) offered as part of the University of London International Programmes in Economics‚ Management‚ Finance and the Social Sciences. This is equivalent to Level 6 within the Framework for Higher Education Qualifications in England‚ Wales and Northern Ireland (FHEQ). For more
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Polaroid Corporation‚ 1996 In late March 1996‚ Ralph Norwood was faced with the task of restructuring Polaroid’s capital structure. In the past‚ Polaroid had a monopoly in the instant-photography segment. However‚ with upcoming threats in the emerging digital photography industry and Polaroid experiencing recent losses in their market share due to Kodak’s competition‚ Gary T. DiCamillo‚ recently appointed CEO of Polaroid‚ headed a restructuring plan to stimulate the firm’s performance. The firm’s
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critical you consider the tax‚ risk‚ and revenue implications of the three proposed capital structures. Financial Analysis – See appendix for detailed methodology and calculations | Capital Structure | Discount Rate | Net Present Value | Flow to Equity Approach | All Equity | R0 15.8% | $1‚228‚485 | Adjusted Present Value Approach | $750k Debt in Perpetuity | Rs 15.8% | $1‚528‚485 | Weighted Average Cost of Capital Approach | Debt/Market Value of .25 | RWACC 15.1% | $1‚469‚972 | | 2002E
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risk adjustment in the capital budgeting allocation process by answering the following questions. a. Explain why risk adjustments are important and how they can affect firm value. Without the correct risk adjustment the firms stock will lose value by taking on high risk projects. The firm could also be considered uncompetitive if they reject low cost/low risk projects. b. Explain how the single hurdle rate currently used by Northern Forest Products can change the risk structure of the company. For
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Prepared by: Victor Amoasii Word count: 3697 CONTENTS 1. Megafon overview and analysis of agency costs 2. Risk Profile Analysis 3. Weighted Average Cost of Capital 4. Megafon valuation 5. Capital investments risk analysis 6. Capital structure and dividend policy Megafon overview and analysis of agency costs Megafon is one of the leading three Russian mobile operators. Its majority shareholder is Alisher Usmanov‚ who controls
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America‚ achieve operating and capital expenditure synergies and consolidate its business scale and financial strength. As part of its integration strategy‚ Repsol-YPF will begin to dispose of select assets which do not correspond to its core businesses outlined above or to its core geographic areas which include Spain‚ Latin America and North Africa. Synergies Estimate Cost savings after tax of $350 million by 2000‚ 1.6% cost savings in 1998‚ reduction in capital expenditure from $15.6 billion
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fixed. Then we review capital structure issues related to the adverse investment selection problem of Myers-Majluf. Finally‚ we discuss the timing hypothesis of capital structure. Empirical studies do not consistently support one theory of capital structure under information asymmetry over the others. Thus‚ the review suggests that additional theoretical contributions are needed to help understand and explain findings in the empirical literature. Keywords: capital structure‚ asymmetric information
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used some debt. When you suggested this to your new boss‚ he encouraged you to pursue the idea. As a first step‚ assume that you obtained from the firm ’s investment banker the following estimated costs of debt for the firm at different capital structures: P e r c e n t F i n a n c e d w i t h D e b t ‚ w d r d 0% - 20
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Applications of option pricing in corporate finance Option pricing is used in four major areas of corporate finance: • Real Options Suppose a company has a 1-year proprietary license to develop a software application for use in a new generation of wireless cellular telephones. Hiring programmers and marketing consultants to complete the project will cost $30 million. The good news is that if consumers love the new cell phones‚ there will be a tremendous demand for the software. The bad news
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