Fin 3010 Dr. Michello Summer 2007 Practice Problems Expected dividend yield Answer: a EASY i. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected dividend yield for the coming year? a. 5.0% b. 6.0% c. 7.0% d. 8.0% e. 9.0% Expected return‚ dividend yield‚ and capital gains yield Answer: e EASY ii. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected capital gains yield for the coming year? a. 5.2% b. 5.4%
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The Marketing Mix of the Company Avon I am to evaluate the marketing mix for the company of Avon. I will examine in detail the target audience‚ the product line‚ packaging‚ pricing‚ and how the product is being sold. Avon was founded in 1886 by David H. McConnell who started selling women’sperfume door to door. The company was first named California Perfume Company‚ but was changed to Avon Products‚ Inc. in 1939. The company was taken public in 1946 and by 1954 sales reached $55 million
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are BEA’s new beta and cost of equity if it has 40% debt? - BEA’s new beta βL = βLใหม่ = (0.87) βLใหม่ = 1.218 - BEA’s cost of equity RsL = RF + βL(RM - RF) = 6% + (1.218)(4%) = 10.872% c. What are BEA’s WACC and total value of the firm with 40% debt? - BEA’s WACC WACC = = (9%)(1-0.4)(0.4) + (10.872%)(0.6) = 8.683% - BEA’s total value of the firm V0 of firm = ‚ g = 0% = = = = $103‚188‚000 Problems (26-9) International Associates (IA) is about to commence operations
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broke. Question #5 How does WACC change over time? What do you think might drive the changes? WACC is the opportunity cost of investing in a company‚ or the expected return of shareholders and debt holders. WACC consists of all capital sources and includes common stock‚ preferred stock‚ short-term debt and long-term debt in the calculation. WACC is the average costs of capital financing‚ and tells us how much a company has to pay for each dollar of financing. WACC for any company will fluctuate
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hectic. Secondly‚ I had forwarded your email to Sohail‚ who is an IIT grad and MBA Marketing from IIM A and heads Wok In the Box marketing‚ and my RM at Foxy Moron (http://www.foxymoron.in/)‚ a leading social media group in India handling clients like Loreal‚etc and also handling our online marketing. The feedback I wanted to provide you was from the right folks and following are excerpts from brief discussions I have had with them over the last couple of days. In all‚ we were all very impressed by
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Once funded‚ a project/investment’s performance was measure in two ways. The first being actual performance vs forecasted plan over 1‚ 3‚ and 5 year periods‚ and the second being Economic Value Added (EVA). EVA was calculated as: EVA = EBIT(1-t) – WACC(period capital expenditure) Midland Energy Capital Planning Model • Optimize capital structure • Midland primarily optimized its capital structure by taking advantage of the borrowing capacity inherent in its energy reserves and long term assets
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Percentage of; Calculation Weight by % Bonds Additional bond 50 million / 1‚120 million 45 million / 1‚120 million 4.46 4.02 Preferred stock 1‚000 million / 1‚120 million 89.29 Common stock 25 million / 1‚120 million 2.23 Total 100 iv) New WACC calculation WACC = (% of debt) (After-tax cost of debt) + (% of preferred stock) (cost of preferred stock) + (% of common stock) (cost of common
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while PepsiCo’s EVA has been increasing (see Exhibit 1.1). Coca-Cola’s NOPAT has decreased in recent years as a result of slowing sales growth and worsening profit margins. If it were not for Coca-Cola’s decreasing WACC‚ its EVA would decrease more rapidly. If Coca-Cola used a WACC of 12%‚ about the average of the past seven years‚ its EVA would have been $445‚000‚000 in 2000. PepsiCo was able to more than double their EVA in
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practice problems Questions 1. What does the WACC measure? 2. Which is easier to calculate directly‚ the expected rate of return on the assets of a firm or the expected rate of return on the firm’s debt and equity? Assume you are an outsider to the firm. 3. Why are market-based weights important? 4. Why is the coupon rate of existing debt irrelevant for finding the cost of debt capital? 5. Under what assumptions can the WACC be used to value a project? 6. How should
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model and the weighted average cost of capital through calculation of the cost of capital for Marriott as a whole. Dan Cohrs is faced with making recommendations for the hurdle rates at Marriott Corporation and its three divisions utilizing CAPM and WACC. This case illustrates how to calculate beta based on comparable companies and to lever betas to adjust for capital structure; the appropriate risk-less rate and market risk premium; the choice of time period to estimate expected returns and the difference
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