market-determined variables in the sense that they are based on investors’ required returns. False 4. The before-tax cost of debt‚ which is lower than the after-tax cost‚ is used as the component cost of debt for purposes of developing the firm’s WACC. False 5. The cost of debt is equal to one minus the marginal tax rate multiplied by the average coupon rate on all outstanding debt. False 6. The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends
Premium Net present value Internal rate of return Weighted average cost of capital
What is the nature of the investment that is under consideration and what are the sources of value (cost savings and revenue increases)? The investment proposed by Bob Prescott‚ an on-site longwood woodyard‚ would reduce operating costs by processing tree-length logs‚ as well as increase revenues by selling shortwood. Cost Savings: In 2006‚ Worldwide Paper’s Blue Ridge Mill had to purchase shortwood from competitor‚ Shenandoah Mill. The new woodyard would begin operations in 2008‚ thus
Premium Investment Finance Rate of return
present day calculation. In order to properly calculate the cost of debt for Worldwide Paper Company‚ we calculated a new weighted average cost of capital using current market and company data. The formula for weighted average cost of capital‚ or WACC‚ is (% of debt on the company’s balance sheet multiplied by the after-tax cost of debt) + (% of equity on the balance sheet multiplied by cost of equity). To determine percentages of the debt and equity on
Premium Net present value Investment Rate of return
INTRODUCTION GAIL (India) Ltd was incorporated in August 1984 as a Central Public Sector Undertaking (PSU) under the Ministry of Petroleum & Natural Gas (MoP&NG). The company was initially given the responsibility of construction‚ operation & maintenance of the Hazira – Vijaypur – Jagdishpur (HVJ) pipeline Project. It was one of the largest cross-country natural gas pipeline projects in the world. Originally this 1800 Km long pipeline was built at a cost of Rs 1700 Crores and it laid
Premium Subsidiary Pipeline transport Natural gas
Patrick Belgica‚ Robie Escaño‚ Ergo Galang‚ Roberto Villanueva‚ Jill Borlong‚ Li (Michael) SPFINMAN / G05 Prof. Alan Jezrel Solomon‚ MBA 1. Determine the Weighted Average Cost of Capital (WACC) based on using retained earnings in the capital structure. In order to find the WACC‚ we need to find the cost of the components of the capital structure and their proportion in the total capital. Cost of Debt – To find the cost of debt‚ we use the details of the bonds issued by Rollins
Premium Weighted average cost of capital Finance Dividend yield
the WACC due effect of the tax shield and hence the value of the firm. Aurora Borealis LLC‚ like any other hedge fund‚ banks on instantaneous rise and fall in stock prices than the long term investment in growth and stability of the firm. The hedge fund plans to short the stock at the moment it rises to the optimal level due to strong signals the hedge fund is trying to pursue. Effect of recapitalization on WACC The current WACC of Wrigley is 10.9%. Since it is all equity firm the WACC is same
Premium Stock market Stock
answer for question 1-3. Need a summary of my solution for conclusion. About 2 pages total. Question : Nike‚ Inc.: Cost of Capital 1 What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2 If you do not agree with Cohen’s analysis‚ calculate your own WACC for Nike and be prepared to justify your assumptions. 3 Calculate the costs of equity using CAPM‚ the dividend discount model‚ and the earnings capitalization
Premium Weighted average cost of capital Dividend yield Mathematics
requirements‚ and tax effects are all included in these cash flows. The CFO also made subjective risk assessments of each project‚ and he concluded that both projects have risk characteristics that are similar to the firm’s average project. Allied’s WACC is 10%. You must determine whether one or both of the projects should be accepted. A. What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Answer: [Show S11-1
Premium Net present value Internal rate of return
SPR 13 | Group Assignment 1 | UST Case Study | 2/19/2013 | | | | Question 1: In order to calculate the impact of the leverage recapitalization on UST’s value‚ we used the WACC and APV methods to calculate its value before and after the recapitalization. WACC Method Using the WACC method‚ we first derived UST’s return on assets (rA). Since we are given the firm’s market capitalization‚ debt and cash‚ we calculated the current Enterprive Value of UST. We were then able to derive
Premium Debt Free cash flow Operating cash flow
Abstract This case analysis takes into consideration the post 2001 period in which PepsiCo acquired Quaker Oats Company. The case analyzes the rivalry and competitive relationship between PepsiCo and Coca Cola. The case puts forward the concepts of EVA WACC and CAPM. The main goal of the case is to analyze the health of both companies in relation to EVA. As far as past performance is concerned Coca Cola is experiencing a decline in its EVA. The cost of debt and the cost of equity for both companies are
Premium Pepsi Coca-Cola Cola