Nike Inc. Case Number 2 Nike Incorporated’s cost of capital is a vital element when addressing opportunities regarding top-line growth and operating performance. Weighted Average Costs of Capital (WACC) is an essential estimation that is needed in order to determine the amount of interest that will be paid for each additional dollar financed. This translates to be the minimum overall required rate of return that the firm will keep. We disagree with Johanna Cohen’s assessment of Nike due to two
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Heinz: Estimating the cost of capital in uncertain times 1. What is WACC? What is its purpose? 2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier? 3. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier? Should you consider short-term debt? How reasonable are your interest rates for the firm? For the WACC? What is the market risk premium? What is Beta? How is it typically
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Assessed Discussion Question 1. Define what we mean by the firm’s financing decision and the firm’s investment decision. What entities are on the “other side” of these decisions? Financing decision refers to those decisions related to the liabilities and the stockholders equality sides of the firm’s position statement especially concerning decision on to issue bond. Firms’ investment decision refers to those decisions concerned with the asset side of the firm’s balance sheet dealing with
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7E7 case study is to seek the answer for the project question. Why is Boeing contemplating the launch of the 7E7 project? Is this the good time to do so? How would we know if the 7E7 project will create value? How to estimate the WACC? Is there anything else the board of directors should consider in assessing the financial appeal of this project? Why might the board vote ’yes’ on the 7E7‚ when the cost of capital estimate is greater than the IRR? Why might the board vote ’no’
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2 (Ex. 13.1 - 13.7 GT):) Exercises 13.1 - 13.7 make use of the following data: In 1985‚ General Motors (GM) was evaluating the acquisition of Hughes Aircraft Corporation. Recognizing that the appropriate WACC for discounting the projected cash flows for Hughes was different from General Motors’ WACC‚ GM assumed that Hughes was of approximately the same risk as Lockheed or Northrop‚ which had low-risk defense contracts and products that were similar to those of Hughes. Specifically‚ assume the Hamada
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1) We do not agree with Joanna Cohen’s WACC calculation because she mistakenly used historical data to estimate the future cost of debt. Joanna calculated the cost of debt by taking the interest expense for 2001 and dividing it by the average debt balance. The cost of debt for Nike is the effective rate that it pays on its current debt‚ meaning the yield to maturity of bonds should be used to make an estimate instead of the average debt balance. Through the use of past data‚ the average balance
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and NAB banks and to come up with a consolidated view of which bank is better from a investor point of view. Price-to-Earnings ratios (P/E)‚ Return on Equity (ROE)‚ Capital Adequacy Ratio‚ Dividend Yield ratio and Weighted Average Cost of Capital (WACC) were calculated in this report as indicators as they are deemed as the most relevant ratios in this context. The P/E ratio gives an indication of the number of
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interest-bearing bonds‚ or saved‚ versus spent. Weighted Average Cost of Capital (WACC) WACC is the calculation of a firm ’s cost of capital. All capital sources - common stock‚ preferred stock‚ bonds and any other long-term debt - are included in a WACC calculation (Investopedia.com). As the cost of capital is measured by looking at what amount is tied up in debt‚ equipment‚ and lost opportunity costs‚ the WACC percentage tells an important story. For example‚ if an organization has a capital
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Análisis Caso Marriott Corporation: Costo de Capital En el caso se plantea que Marriott utiliza cuatro elementos en su Estrategia Financiera las cuales apuntan a un crecimiento objetivo. Por lo que‚ se pregunta‚ ¿Son consistentes estos elementos con su crecimiento objetivo?‚ y para ello se realiza el siguiente análisis. I. Análisis de los Elementos de Estrategia Financiera: Primero debemos identificar que el alto crecimiento que busca Marriott es igual a maximizar el valor de la empresa y para
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corporate level and have an impact in calculating the Weighted Average Cost of Capital (WACC). 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations (risk-free rate‚ equity market risk premium (EMRP)‚ beta). Is Midland’s choice of EMRP appropriate? If not‚ what recommendations would you make and why? Calculating Midland’s Corporate WACC rd = Cost of debt re = Cost of equity D =
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