students the opportunity to explore how a company uses the Capital Asset Pricing Model (CAPM) to compute the cost of capital for each of its divisions. The use of Weighted Average Cost of Capital (WACC) formula and the mechanics of applying it are stressed. 8. • If students are familiar with the WACC formula‚ then the material can be covered in one class‚
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choice of WACC – Weighted Average Cost of Capital. WACC is one of the most widely used estimation of a firm’s cost of capital‚ with each and every source of capital proportionally weighted. A firm is generally financed by debt and equity‚ therefore‚ the equation to calculate WACC is as follows: Where: - book value of the firm’s debt - book value of the firm’s equity - value of the firm’s financing - cost of debt - cost of equity - Corporate tax In terms of investment decision‚ WACC reflects
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additional costs. • By mixing the permanent sources of funds used by the organization that will maximize their common stock price or searching for the funds mix that will minimize the organization’s composite cost of capital. • What is meant by WACC? What are some components
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1. Do you think Mercury is an appropriate target for AGI? Why or why not? Mercury is an appropriate target for AGI. AGI is looking to increase its revenue and profit by utilizing synergies. The initial aim of AGI for acquiring Mercury Athletics is to increase leverage with contract manufacturers and to boost the cooperation with the retailers and distributors. AGI was one of the most profitable and successful companies in the market segment‚ but the firm’s size remained rather small in comparison
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their Possible Solutions Introduction to WACC WACC stands for Weighted Average Cost of Capital The company cost of capital is defined as the expected return on a portfolio of all the company’s existing securities. It is also known as the opportunity cost of capital for investment in firm’s assets Hence WACC is the minimum return required by the investors. So one should invest only in projects having higher return than WACC Issues in calculating WACC Single cost or Multiple cost Nike has multiple
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The Cost of Capital Simrith Sidhu‚ Amy-Jane Miocevich‚ Jacques Rousset‚ Jing Tao Task One: Marriott uses the Weighted Average Cost of Capital (WACC) to measure the opportunity cost for investments. WACC is calculated using the 1987 financial data provided in the Marriot Corporation: The Cost of Capital (Abridged) case study and estimators. WACC = Cost of Equity x (Equity/Debt +Equity) + Cost of Debt x (Debt/(Debt + Equity)) x (1 – Tax Rate) This method is applied for Marriott as a whole and
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To: David Rogers From: JMSB Analysis Group Date: December 2009 Group members: Jun Gao Jiaqi Yin Qing Zhang Antoine Vulcain Main issues: Evaluation of two possible products: 1. NPV of two possible products 2. WACC analysis --CPAM --Bond yield plus Recommendation: Product B(aircraft) will be suggested due to the situation of the company. ---If there are enough funds for the company‚ product A is also acceptable
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investments would you value using Marriott’s WACC? Cost of debt：8.95%+1.3%=10.25% Cost of equity：8.95%+1.64*7.43%=21.14% 實際beta=1.11，根據exhibit 1，長期債務為24.99億美元，權益價值為35.64億美元(30元*118.8百萬股)，可以得出D/V=24.99/35.64=41%標的資本結構D/V=60%，所以必需做出調整。 V=D+E，D/V=41%，E/V=59% Beta of asset=(E/V)*beta of equity=0.59*1.11=0.655 Beta of equity=(V/E)*beta of asset=(1/0.4)*0.655=1.64 Risk free rate：美國30年期政府公債利率為8.95% Risk premium：exhibit 5 S&P500和美國長期政府公債的利率差為7.43% WACC：(1-0.34)*0.6*10.25%+0.4*21.14%=12.515% If
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capital. Nova Chemical’s 1989 WACC Common Shares 15.2 (Exhibit 7) Price per Share 33.00 (5-Year Average) Equity (mkt value) 501.6 Bank Debt 84.5 (Exhibit 7) Current Portion LTD 10 (Exhibit 7) Long Term Debt 240 (Exhibit 7) Interest Bearing Debt 334.5 Source Amount (MM) % of Total Tax Cost Weighted Cost Debt (book value) 334.5 40.0% 6.6% 2.62% Equity (mkt value) 501.6 60.0% 17.6% 10.57% WACC 13.20% Average Tax Rate 40.0%
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Nike‚ Inc.: Cost of Capital Case 15 Financial Administration FINC 5713-180 Team 1 Fall 2013. October 8‚ 2013. Introduction Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund management firm‚ is considering to buy some shares from Nike‚ inc even if it’s share price had declined from the beginning of the year‚ for the Northpoint Large-cap fund she managed which invested mostly in Fortune 500 companies and it was doing well despite the decline
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