Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows Richard S. Ruback* This paper presents the Capital Cash Flow (CCF) method for valuing risky cash flows. I show that the CCF method is equivalent to discounting Free Cash Flows (FCF) by the weighted average cost of capital. Because the interest tax shields are included in the cash flows‚ the CCF approach is easier to apply whenever debt is forecasted in levels instead of as a percent of total enterprise value. The CCF method retains
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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 of the revenue a firm earns from transactions and interest (brokerage activities) has something
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Chapter 6. Ch 06 P14 Build a Model a. Use the data given to calculate annual returns for Bartman‚ Reynolds‚ and the Market Index‚ and then calculate average returns over the five-year period. (Hint: Remember‚ returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss‚ adding the dividend to the capital gain or loss‚ and dividing the result by the beginning price. Assume that dividends are already included in the index. Also‚ you cannot
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from the fund which was accomplished by: o Expected PSC Portfolio Return = alpha + beta * Market Return combined with data on PSC’s portfolio holdings and market returns‚ PSC established a relationship between the performance of the market and PSC’s portfolio o Beta – measured how the portfolio responded to changes in the market o Alpha – amount of return in excess of that due to market risk o Therefore‚ beta was a measure of the market risk of PSC’s portfolio while alpha measured its expected
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expected return on a risky asset depends only on that asset’s nondiversifiable risk. a. Efficient Markets Hypothesis (EMH) b. systematic risk principle c. Open Markets Theorem d. Law of One Price e. principle of diversification BETA COEFFICIENT 7. The amount
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corporation’s WACC. 3) What is the Weighted Average Cost of Capital for Marriott Corporation? In order to calculate the WACC for Marriott’s Corporation I’m going to use the following formulas: 1. Weighted Average Cost of Capital: 2. Levered Beta: Marriott’s structure: D= 60% E= 40% Marriott’s corporate tax: Tc= 175.9 / 398.9 Tc= 0.441 Marriott’s Pre-tax cost of debt: Debt rate premium above government= 1.30% U.S. Government
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assets risk that is attributable to firm specific random causes. False 14)The beta of a portfolio is a function of the standard deviations of the individual securities in the portfolio the proportion of the portfolio invested in those securities and the correlation between the return of those securities False 15War‚ inflation and the condion of the foreign markets are all example of Nondiversifiable risk 16A beta coefficient of 1 represents an asset that (a) is more responsive than the market
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of the APC mutations occur. This region is located between codons 1284 and 1580. (Half‚ et. al‚ 2009). As mentioned before‚ the APC gene produces a protein called the APC protein. The APC protein binds to the Beta-Catenin to prevent it from interacting with proliferation genes. However‚ if Beta-Catenin is bound to the mutated or nonfunctional APC protein then it will be able to accumulate and allow excessive proliferation of the colonic epithelial cells‚ which results in the formation of polyps and
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Cost of Capital at Ameritrade Christoph Schneider Ross School of Business Basic assumptions Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) 1997 35.5% 0.25 0.00 0.00 1996 39.4% 1995 35.1% Average 36.7% Comparable companies’ βE Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) Discount Brokerage Firms Charles Schwab Quick & Reilly Waterhouse Securities 1997 35.5% 1996 39.4% β E from Jan’92-Dec’96 2.30 2.20 β E from all months 2.35 2.30
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Debt rate premium Maturity Rate(%) 30 – year 8.95 10 – year 8.72 Risk free return = 8.95% Market risk = 9.90% Rd = (0.0895+0.0872+0.0872)/3 + 0.013 = 0.101 Re = Rf +(Rm – Rf) β Estimating Beta : Beta of the firm can be calculated by first finding the beta unleveraged value. βu= βL /
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