9 Calculating WACC Mullineaux Corporation has a target capital structure of 60 percent common stock‚ 5 percent preferred stock‚ and a 35 percent debt. Its cost of equity is 12.5 percent‚ the cost of preferred stock is 5.5 percent‚ and the cost of debt is 7.2 percent. The relevant tax rate is 35 percent. a. What is Mullineaux’s WACC? b. The company president has approached you about Mullineax’s capital structure. He wants to know why the company doesn’t use more preferred stock financing
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at 4.5% * JP Morgan has issued an estimate for Expected Market Return at 8.5% * Euribor is 2% * Before tax cost of debt = 5% * Tax rate = 30% Please calculate the weighted average cost of capital (WACC) for this firm. 2. You are now asked to calculate the WACC for a toothpaste manufacturer with the following data: * Average share price for last 6 months = €34/ share * Current year’s dividend = €3/ share * Applicable growth rate = 3% * Tax rate =
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Analysis from the reputation perspective Corporate story of L’oreal a) Relevant: They are talking about the realistic and relevant description of the key aspects of the organization such as their origins‚ vision and mission. It is really clear that Loreal is committed to beauty through quality and innovation‚ b) Realistic: We can see that L’oreal is talking about
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2. What is the maximum price they could expect to pay Monmouth‚ based on an analysis of valuation using discounted cash flow‚ calculation of WACC and terminal value determination? 2. Based on the DCF valuation and using a WACC of 8.25% (the beta assumed to be 1‚ the average beta of comparable firms and the coupon rate to be 7.96%‚ the rate for BB rated companies) and a growth rate of 5.5%. The fair price is $40.4 per share for Robertson‚ lower than the $50 offered by Simmons to sell their
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CAPITAL BUDGETING Cost of Capital Evaluating Cash Flows Payback‚ discounted payback NPV IRR‚ MIRR The Cost of Capital • Cost of Capital Components – Debt – Common Equity • WACC Should we focus on historical (embedded) costs or new (marginal) costs? The cost of capital is used primarily to make decisions which involve raising and investing new capital. So‚ we should focus on marginal costs. What types of long-term capital do organizations use? nLong-term debt nEquity Weighted
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as the discount rate in net present value (NPV) project appraisal techniques.1 The weighted-average cost of capital (WACC) represents the overall cost of capital for a company‚ including the costs of equity and cost of debt‚ weighted according to the proportion of each source of finance within the business. In easy words WACC measures a company’s cost to borrow money. The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing: Where: Re
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Marketing Case “L’Oreal” Problem Statement L’Oréal has successfully launched Plénitude in France and recently introduced the Sub brand into the US market. Unfortunately‚ Plénitude is not having the same success as it has had in its home market in France and Europe‚ and is still not gaining any profit. L’Oréal now needs to adapt its Product strategy to the US market in order to strengthen the brand. Situation Analysis (annex 1) L’Oréal exported Plénitude to the USA and has been struggling
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Discuss the advantages of developing models for a DSS with Planners Lab instead of traditional programming languages or spreadsheets? Ans) The PL is easy to use and it provides easy visibility of all the formulas/logic‚ which is easy to modify. Also‚ the graphs and the effects of changes are easily seen in the PL software. The dashboard makes it easier to present the graphs and tables. Different types of graphs and charts can be produced just at the click of the mouse. The drag and drop feature
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Team Image Parfaite Pre-Case Study Akila Devers Stephanie Heyligar Khadidjatou Camara I. Current Offering of the L’Oréal Paris Brand L’Oréal Paris is just one of the many global consumer product brands owned by the megacorporation L’Oréal. Natalie Cristo‚ the Senior Vice President of L’Oréal Paris‚ stated that L’Oréal Paris is the flagship brand of the company and that it celebrates the value of the consumer (Jeffries‚ 2011). With a legendary slogan‚ “Because you’re worth it”‚ L’Oréal Paris
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1. Why do think Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. (10% weighting) Answer The hurdle rate is the rate of return a firm has to offer finance providers to induce them to buy and hold financial security. (Arnold‚2007). This is also known as cost of capital or weighted average cost of capital. The returns offered by alternative securities with the same risk
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