homework 7 Globalizing the Cost of Capital Budgeting at AES Chia yun ‚Tsai(Debbie) 2013/3/22 The reason why Rob Venerus used the cost of capital concept to improve upon what AES had used in the past for a discount rate is because the old model always used the same discount rate for the model. However‚ with electricity generating businesses around the world‚ the old model started to cause some problems. In the past‚ AES used the same cost of capital for all of its capital budgeting‚ but the company’s
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SOUTHEASTERN HOMECARE Cost of Capital Background Southeastern Homecare was initially a taxable partnership owned organization run by three partners‚ but later due to lack of capital and the rapid growth of the organization‚ the company was incorporated and the stocks were sold to the public. The company has two operating divisions: the Healthcare Services Division and the Information Systems Division. Both these divisions provide different services and operate individually. The Information Systems
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strategy are to fund overseas growth‚ invest in value-creating project‚ achieve an optimal capital strategy and repurchase undervalued shares. To accomplish all these goals the company has asked Janet Mortensen‚ Vice President of finance for Midland energy resources‚ to calculate the weighted average cost of capital (WACC) for the company as a whole. Formula: WACC = rd (D/V) (1-t) + re (E/V) Where‚ rd = cost of debt; re= cost of equity; D = Market value of debt; E= Market value of equity; V= Market
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Statement of the Problem Merck & Co.‚ Inc.‚ a leading pharmaceutical company‚ faces the threat of the patents of its most popular drugs expiring in 2002. The only way to counter the loss of sales from these drugs going off patent is to develop new drugs in order to refresh the company’s portfolio. LAB Pharmaceuticals‚ a small pharmaceutical company who specializes in the treatment of neurological disorders‚ has approached Merck with the opportunity to license Davanrik‚ a new drug with the potential to
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significant stakeholder in the company. Since a lot of Mercks’ products patents will be expiring in the next few years Gilmartin put a big emphasis on investing into the companies research and development of new products. Gilmartin wanted this company to really focus on coming out with new products because their bottom line was going to take a hit in the next few years once the patent on their big money products runs out. Gilmartin found it an ideal time to invest in R&D while many of the other companies
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FINACE CASE STUDY 3: ESTIMATING THE COST OF CAPITAL QUESTION 1: a)b)c) The Capital Assets Price Model (CAPM) is used to describe the relationship between risk and expected return and is often used to estimate a cost of equity (Investopedia‚ 2009). The cost of equity(COE) of the discount rate is: R = Rf + β*(E - Rf) (1) Rf = Risk free rate of return‚ usually U.S. treasury bonds β = Beta for a company E = Expected return of the market (commercial airlines
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CHAPTER 15 INVESTMENT‚ TIME‚ AND CAPITAL MARKETS TEACHING NOTES The primary focus of this chapter is on how firms make capital investment decisions‚ though the chapter also includes some topical applications of the net present value criterion. The key sections to cover are 15.1‚ 15.2‚ and 15.4‚ which cover stocks and flows‚ present discounted value‚ and the net present value criterion respectively. You can then pick and choose between the remaining sections depending on your time constraint and interest
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Merck & Co.‚ Inc.‚ which is a global health care company that delivers innovative health solutions through its prescription medicines‚ vaccines‚ biologic therapies‚ animal health‚ and consumer care products‚ has a long and rich history of working. There are some main stages of the whole history and background information. In 1851‚ Dr. Emst Christian Friedrich Schering begins developing and selling pharmaceutical products in Berlin. Three years later‚ the company opened its first production facility
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ESTIMATING PROJECT TIMES AND COSTS Estimating is the process of forecasting or approximating the time and cost of completing project deliverables. Cost‚ time‚ and budget estimates are the support for control. Project status reports depend on reliable estimates as the major input for measuring variances and taking corrective action. Inaccurate estimates lead to false expectations and consumer dissatisfaction. There are reasons why estimating time and cost are important. Below are the following:
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research scientist working for Merck and Company‚ discovered evidence that one of the company’s drugs might kill the parasite that causes river blindness. He then decided to request permission to research this new finding. The mangers for the company noticed that it would take enormous amount of funding and time to develop this new vaccine. This new product could be really hard to market and who was going to actually buy it; it could also damaged the market share that Merck currently had by selling
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