The Cost of Capital 1 Background As investors desire to obtain the best/highest return on their investments in securities such as shares (Equity) and loans to companies such as debentures (Debt)‚ these returns are costs to the companies paying these Dividends (on equity) and Interest (on Debts)! It all depends on the perspective from which we chose to view the calculation (are we Earning or Paying?) Companies MUST consider the cost of financing they receive in the form of equity or debt if they
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both on top-line growth and operating performance. The company’s cost of capital is a critical element in such decisions and it is important to estimate precisely the weighted average cost of capital (WACC). In our analysis‚ we examine why WACC is important in decision making and we show how WACC for Nike Inc. is calculated correctly. Also‚ we calculate the company’s cost of equity using three different models: the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Earnings
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earnings as evaluated is questionable. Under the value-creating investment prong‚some projects were considered as future equity cash flows using the cost of equity as the discount rate instead of the hurdle rate based on the project or divisional WACC. The calculation of EVA (economic value added) was manipulated by a “capital charge” and the “capital charge” was
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possible place in the NorthPoint Large-Cap Fund‚ Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically‚ the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses‚ be it debt or the many types of equity‚ by their respective weights. It is the rate of return that a company needs
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Abstract This case analysis takes into consideration the post 2001 period in which PepsiCo acquired Quaker Oats Company. The case analyzes the rivalry and competitive relationship between PepsiCo and Coca Cola. The case puts forward the concepts of EVA WACC and CAPM. The main goal of the case is to analyze the health of both companies in relation to EVA. As far as past performance is concerned Coca Cola is experiencing a decline in its EVA. The cost of debt and the cost of equity for both companies are
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Case Discussion in Finance Submission Date: 23.12.2012 Case Discussion in Finance – Yeats Valves and Controls Inc. Table of contents 1 2 3 3.1 Issue Statement Is there a strategic fit between Yeats and TSE? Data Analysis Calculation of the WACC 4 5 6 6 3.1.1 Return on equity ............................................................................................................................ 7 3.1.2 Return on debt .................................................................
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Outstanding Shares 2 b. Book Value of Equity 2 c. Price per Share 2 d. Earnings per Share 3 e. Debt Interest Coverage Rations and Financial Flexibility 3 f. Outstanding Shares 3 Wrigley’s Current Weighted Average Cost of Capital (WACC) 4 Debt Proceeds to Pay a Dividend or Repurchase Shares 4 Wrigley’s Recapitalization 5 Appendices 5 i. Objectives This report seeks to answer the following five questions about William Wrigley Jr.: 1. In the abstract‚ what is Blanka
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Guillermo Furniture Store University of Phoenix FIN 571/December 10‚ 2012 Marcel Santiz In week one‚ the author conducted an analysis on the Guillermo Furniture Store location‚ company finance‚ and the production of work. For this current week‚ the author will analysis some alternative for Guillermo Furniture Store working capital policy by implementing multiple valuation techniques with an emphasis on reducing business risks and comparing the average cost of capitol. In
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Pinkerton Group Project Executive Overview The security guard services industry consisted of two segments: proprietary guards and contract guards. The historical growth was driven by companies realizing‚ that contracting guards allowed them gain operating flexibility instead of managing their own security personnel. In 1987 security guard services was a $10 billion industry growing at 6% a year. Due to the industry being very mature‚ fragmented‚ and price competitive there was an ongoing
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because it accounts for the beta. Using the CAPM model‚ the new Star Company cost of equity is calculated as 9.4% and the WACC is determined to be 9.14% at the 9.5% debt rate. In addition to the estimation of the cost of equity‚ Star Appliance Company is also considering increasing their current debt ratio of 9.5% to the industry average of 19%. With a higher current debt ratio the WACC will be lower‚ at a rate of 8.24%. The cost of equity of each product was valued using the beta from the industry averages
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