FI 512 Week 3 Answer Key Chapter 6 4. Why is it usually easier to forecast sales from seasoned firms in contrast with early-stage ventures? It is usually easier to forecast a seasoned firm’s sales compared to early-stage ventures because a seasoned firm generally has an operating history. The forecast of the firm’s financials therefore could begin with the firm’s historical sales and the past relationships between sales and the other asset and liability accounts. Early-stage ventures have little
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se | 2010 | | BUSI 640 Leigh Healey Alex Lutz November 30th | [Marriott Case Study] | Professor Triantis | 1. What is the weighted average cost of capital (WACC) for Marriott Corporation based on its target debt-equity ratio? Use a 34% tax rate. WACC = [(E/D+E) * Re] + [(D/D+E) * Rd(1-Tc)] Be = [1 + (1-Tc) d/e]*Ba 1.11 = [1+(1-.34}.41/.59]*Ba Ba = .76098 Using statistics from page four of the assigned case study: Risk Free rate (Rf) = 8.72 % (10yr rate)
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taxes‚ an increase in leverage (i.e.‚ an increase in D/E ratio) will lead to a) Higher WACC b) Low WACC c) No change in WACC d) The information provided is not sufficient to chose any of the above questions Ans: C 3) According to M&M Theorem in the presence of corporate taxes an increase in leverage (i.e.‚ an increase in D/E ratio) will lead to a) Higher WACC b) Low WACC c) No change in WACC d) The information provided is not sufficient to chose any of the above questions Ans:
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the hurdle rate? Currently Teletech uses a single hurdle rate for both their Telecommunications Services and Products and Services divisions. The hurdle rate is the cost of capital based on an estimate of the corporation’s WACC. 2. Please estimate the segment WACCs for Teletech (see the worksheet in case Exhibit 1). As you do this‚ carefully note the points of judgment in the calculation. Corporate Telecommunications Products & Systems MV asset weights 100% 75% 25% Bond rating A-/BBB+
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recapitalization of Wm. Wrigley Jr‚ Company which is unleveraged firm in 2002. This recapitalization with $3 billion debts increases the firm’s value and share price. On the other hand‚ it could be a risky strategy for Wrigley; therefore‚ based on our WACC analysis‚ the report indicates that it would be appropriate stretegy to have $2 billion debts instead of $3 billion. This examination also states that the firm needs to repurchase its share by the debts rather than pay dividend. 1. Introduction
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(1195) | 144 | 8260 | 24230 | 5202 | Cash Operating Taxes | 1123 | 19 | (3096) | (9028) | (2021) | Adjusted Net Operating Profit after Tax (NOPAT) | (72) | 163 | 5164 | 15202 | 3181 | Economic Value Added (Fluid Milk) = NOPAT – (EBV Capital x WACC) = (72) – (150012 x 0.1) = -15073.2 Economic Value Added (Cultured) = NOPAT –
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Chapter 14 Cost of Capital Multiple Choice Questions 1. A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith‚ Inc. What is the return that these individuals require on this investment called? A. dividend yield B. cost of equity C. capital gains yield D. cost of capital E. income return 2. Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the: A. compound rate. B. current yield. C. cost of debt
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Value of Operations of Constant Growth Firm EMC Corporation has never paid a dividend. Its current free cash flow of $400‚000 is expected to grow at a constant rate of 5%. The weighted average cost of capital is WACC = 12%. Calculate EMC’s value of operations. FCF = $400‚000 g = 5% WACC = 12% Vop = PV of expected future free cash flow Vop = = = $6‚000‚000 (13-3) Horizon Value Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant
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SEAT NUMBER: ……….… ROOM: .………………. FAMILY NAME.………….....…………………………. This question paper must be returned. Candidates are not permitted to remove any part of it from the examination room. OTHER NAMES…………….…………………..…….. STUDENT NUMBER………….………..…………….. SESSION 1 EXAMINATIONS JUNE 2012 Unit: AFIN253: Financial Management Time Allowed: 2 hours plus 10 minutes reading time. Total Number of Questions: 20 Multiple Choice Questions plus 6 full response questions. Instructions: 1. PART A (60 marks):
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Questions 1. If Symonds Electronics Inc. were to raise all of the required capital by issuing debt‚ what would the impact be on the firm’s shareholders? The impact on shareholders can be analyzed by calculating the EPS and ROE of the firm under the alternative scenarios as follows: All Debt With $5‚000‚000 Expansion Current Growth in Revenues Revenues EBIT Interest EBT EBT*(1-T) # of shares EPS Debt Equity Debt/Equity Ratio Return on Equity 15‚000‚000 2‚250‚000 0 2‚250‚000 1‚350‚000 1‚000‚000 1.35
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