practice problems Questions 1. What does the WACC measure? 2. Which is easier to calculate directly‚ the expected rate of return on the assets of a firm or the expected rate of return on the firm’s debt and equity? Assume you are an outsider to the firm. 3. Why are market-based weights important? 4. Why is the coupon rate of existing debt irrelevant for finding the cost of debt capital? 5. Under what assumptions can the WACC be used to value a project? 6. How should
Premium Weighted average cost of capital Finance Stock
model and the weighted average cost of capital through calculation of the cost of capital for Marriott as a whole. Dan Cohrs is faced with making recommendations for the hurdle rates at Marriott Corporation and its three divisions utilizing CAPM and WACC. This case illustrates how to calculate beta based on comparable companies and to lever betas to adjust for capital structure; the appropriate risk-less rate and market risk premium; the choice of time period to estimate expected returns and the difference
Premium Investment Finance Generally Accepted Accounting Principles
’s common stock is selling for $8.59 per share‚ and its expected growth rate in earnings and dividends is 5 percent. What is Global ’s cost of common stock? a. 12.22% b. 17.22% c. 10.33% d. 9.66% e. 16.00% WACC with Flotation Costs Answer: a Diff: E [iv]. An analyst has collected the following information regarding Christopher Co.: • The company’s capital structure is 70 percent equity‚ 30 percent debt. • The yield to maturity on the
Premium Weighted average cost of capital Stock market Stock
of calculations for reference to different applications. Mortensen used WACC formula to estimate cost of capital‚ compute the cost of debt by adding a premium over US Treasury securities of a similar maturity‚ and calculate the cost of equity by using the CAPM formula. After reviewing the case and tables given‚ we calculated the company’s composite WACC and WACCs for each division respectively. The company’s composite WACC is 8.19%. The inputs we used are spread to treasury of 1.62%‚ debt ratio
Premium Mathematics Weighted average cost of capital Investment
−investment + CFN CF1 CF2 + +L+ 2 (1 + WACC) (1 + WACC) (1 + WACC) N where‚ in a simple situation: equity debt WACC = equity + debt (cos t of equity ) + equity + debt (cos t of debt )(1 − tax rate ) Using debt for financing has a tax advantage in that interest payments are tax deductible. This tax deductibility is a source of value for the firm. In the normal NPV calculation‚ this additional value is accounted for in the WACC. However‚ in many cases the capital structure
Premium Finance Net present value Taxation
should undervalued at discount rates below 11.2% * The market responded mixed signals to Nike’s changes. Kimi Ford has done cash flow estimation‚ and asks her assistant‚ Joanna Cohen to estimate cost of capital. WACC Methodology: * The weighted average cost of capital (WACC) is the rate (expressed as a percentage‚ like interest) that accompany is expected to pay to debt holders (cost of debt) and shareholders (cost of equity) to finance its assets. * It is the minimum return that a
Premium Weighted average cost of capital Arithmetic mean Financial markets
to assess its two business segments. They look at return of capital on both segments and apply the same hurdle rate‚ which is also used for performance assessment. The hurdle rate was established using Teletech’s Weighted Average Cost of Capital (“WACC”) as a representation of the opportunity cost of money. Some of the company’s senior management‚ chiefly Rick Phillips‚ Executive Vice President of the Telecommunications Services segment‚ believe the company should be using different hurdle rates
Premium Weighted average cost of capital
General Approach The company is split into 3 divisions Lodging‚ Contract Services and Restaurants. The WACC for each of the 3 divisions and then subsequently the entire corporation’s WACC need to be calculated. This will be done through calculating the WACC for each of the 3 divisions and then taking a weighted average of these 3 divisional WACC numbers to get the overall Marriott Corporation WACC. 1. Calculating the Beta a. Calculate the levered Beta for each division: BL = BU (1+D/E)
Premium Marriott International Weighted mean Mathematics
| |Target Group |Carpenters‚ plumbers‚ housewives‚ constructors/masons ‚etc. | |Positioning |Pioneer and market leader in consumer adhesives and specialty chemicals in India. | |Product Portfolio
Premium Petroleum Brand Chemical industry
Management System and SAP Integration Solution for PPL SUI About Pakistan Petroleum Limited: The pioneer of the natural gas industry in the country‚ Pakistan Petroleum Limited (PPL) has been a frontline player in the energy sector since the mid – 1950s. As a major supplier of natural gas‚ PPL today contributes some 20 percent of the country’s total natural gas supplies besides producing crude oil‚ Natural Gas Liquid and Liquefied Petroleum Gas. PPL operates six producing fields across the country at Sui (Pakistan’s
Premium Natural gas Maintenance