ideas. Economic Profit Is a Performance Metric To understand economic profit‚ it helps to distinguish between a performance metric and a wealth metric. A performance metric refers to a measure under company control‚ such as earnings or return on capital. A wealth metric‚ on the other hand‚ is a measure of value that - such as equity market capitalization or the price-to-earnings (P/E) multiple -depends on the stock market’s collective and forward-looking view. Now‚ although these two types of metrics
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Midland Energy [pic] Midland Energy Resources‚ Inc. Cost of Capital Table of Contents I. Executive Summary II. Introduction III. Cost of Capital IV. Risk & Tax Rate V. Capital Structures VI. WACC VII. Conclusion VIII. References I. Executive Summary Midland Energy Resources is a global energy company with operations in oil and gas exploration and production(E&P) providing a broad array of products and services to upstream oil and gas customers worldwide including refining and marketing
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CHAPTER 9 THE COST OF CAPITAL (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Capital components Answer: c Diff: E [i]. Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting? a. Long-term debt. b. Common stock. c. Accounts payable and accruals. d. Preferred stock. Capital components Answer: d
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shareholder value-creation‚ cost efficiency and control and risk-avoidance‚ Hill Country’s growth was steady and debt was avoided. However‚ the company’s cash position and conservative capital structure has a negative impact on its financial performance measure‚ which is indicated by a lower ROE and ROA rate. Also compared with other U.S companies in the industry‚ the zero-debt-capital structure is unusual. Therefore‚ Hill Country start to consider is it the time to change its capital structure‚ and if so
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government bond‚ which is 6%. 2. HydroTech’s: a. Market Capitalization (its market value of equity)‚ $100 million. b. CAPM beta‚ 1.2 c. Total book value of debt outstanding‚ $50 million. d. Cash‚ $10 million 3. The cost of debt (using the quoted yields on HydroTech’s outstanding bond issues)‚ which is 7%. With this information in hand‚ you are now prepared to undertake the analysis. Case Questions & Solutions for Case Questions 1 – 5 1. Calculate HydroTech’s
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ONGC Ke – cost of equity |Rm – expected returns on emerging markets |13 | |Rf – risk free return |8.5 % | |Beta |0.2835 | |Ke = Rf + beta( Rm-Rf)
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$90 A. What is the firm’s weighted-average cost of capital at various combinations of debt and equity‚ given the following information? Debt/Assets | After-tax Cost of Debt | Cost of Equity | Cost of Capital | 0% | 8% | 12% | 12.00% | 10% | 8% | 12% | 11.60% | 20% | 8% | 12% | 11.20% | 30% | 8% | 13% | 11.50% | 40% | 9% | 14% | 12.00% | 50% | 10% | 15% | 12.50% | 60% | 12% | 16% | 13.60% | K=(weight*cost of debt)+( weight*cost of equity) A. (0% x 8%) + (100% x 12%) = .120
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References: DRAGONWTX. (2012‚ March 19). Nike‚ Inc.: Cost of Capital. Retrieved March 20‚ 2013‚ from Blogger: http://lepicisheng.blogspot.com/2012/03/nike-inc-cost-of-capital.html emfps. (n.d.). Retrieved from emfps.blogspot.com: http://emfps.blogspot.com/2011_06_12_archive.html Jmatsanurai. (2009‚ October 17). Nike Case Study. Retrieved March 20‚ 2013‚ from
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is the firm’s weighted-average cost of capital at various combinations of debt and equity; given the following information? Show work Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 9% 14% ? 50% 10% 15% ? 60% 12% 16% ? WACC = W d * K d + W e * K e Debt/Assets Wd After-Tax Cost of Debt We Cost of Equity Cost of Capital 0% 0 8% 1 12% 0.12 = 12% 10%
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product lines like general merchandise including cosmetics‚ food‚ beverages and photofinishing. Walgreens is one of the fastest growing retailers in the United States and led the chain drugstore industry in retail sales and profits last year. The capital structure of this retail drugstore is determined by 42‚5% Debt and 57‚50% Equity due to $8.239 of the total debt and $11‚104‚30 of Equity resulting in $19‚313.60 of Total Liabilities and Shareholders’ Equity for 2007. Among the main debt-financing
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