Cost of Capital at Ameritrade Christoph Schneider Ross School of Business Basic assumptions Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) 1997 35.5% 0.25 0.00 0.00 1996 39.4% 1995 35.1% Average 36.7% Comparable companies’ βE Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) Discount Brokerage Firms Charles Schwab Quick & Reilly Waterhouse Securities 1997 35.5% 1996 39.4% β E from Jan’92-Dec’96 2.30 2.20 β E from all months 2.35 2.30
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Supplementary Notes: Capital Structure by Kyung Hwan Shim University of New South Wales Australian School of Business School of Banking & Finance for FINS 1613 S1 2011 May 14‚ 2011 ∗ These notes are preliminary and under development. They are made available for FINS 1613 S1 2011 students only and may not be distributed or used without the author’s written consent. ∗ 1 Contents 1 Introduction 2 Financial Leverage 3 M&M Proposition I: Capital Structure Irrelevance 4 M&M Proposition II:
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Introduction Parametric Equations and Curves Tangents with Parametric Equations Area with Parametric Equations Arc Length with Parametric Equations Surface Area with Parametric Equations Polar Coordinates Tangents with Polar Coordinates Area with Polar Coordinates Arc Length with Polar Coordinates Surface Area with Polar Coordinates Arc Length and Surface Area Revisited Introduction Sequences More on Sequences Series - The Basics
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2. Case: Pioneer Petroleum Note that p.2 of the case incorrectly states that the firm’s debt policy is that debt should comprise 50% of its total capital structure‚ defined as “long-term debt plus book equity.” The correct text should state “long-term debt plus market equity.” Answer the following questions: a. Does Pioneer estimate its overall corporate weighted-average cost of capital correctly? I think they´re WACC is correctly estimated. They use 50% debt and 50% equity‚ which I think is very
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What is meant by the term media convergence with regard to technology‚ and how has it affected everyday life? I believe media convergence with regard to technology is when some forms of media combine together. A perfect example is the internet and telephones we have our now smart phones‚ or the classic newspaper and television gives us the news‚ now even combining television and radio whether you listen to the news on the radio or listen to music both are now on the television. These forms of technology
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Questions 1. If Symonds Electronics Inc. were to raise all of the required capital by issuing debt‚ what would the impact be on the firm’s shareholders? The impact on shareholders can be analyzed by calculating the EPS and ROE of the firm under the alternative scenarios as follows: All Debt With $5‚000‚000 Expansion Current Growth in Revenues Revenues EBIT Interest EBT EBT*(1-T) # of shares EPS Debt Equity Debt/Equity Ratio Return on Equity 15‚000‚000 2‚250‚000 0 2‚250‚000 1‚350‚000 1‚000‚000 1.35
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Chpt.16 Financial Leverage and Capital Structure Financial Leverage Chapter Outline Financial Leverage Effect of leverage Break-even Analysis Homemade Leverage M&M Propositions (I & II): optimal D/E? No tax Corporate tax Corporate tax & bankruptcy costs Corporate & personal taxes Arbitrage The Capital-Structure Question and The Pie Model The value of a firm is defined to be the sum of the value of the firm’s debt and the firm’s equity. V=E+B If the goal of the management of the firm is
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1. What do you expect to drive a company’s price-to-book equity and price-to-earnings multiples? Company’s net sales and profit margin: This is company’s ability to use its equity to generate abnormal earnings. This is driven by industry maturity and performance under the given economic condition. Mature and highly saturated industry will have a lower profit margin as the competition is getting intense and it is harder to earn profit. Company’s financial strategy: the effectiveness of the financial
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Midland Energy/Sample 2 Midland Energy Resources‚ Inc. Midland Energy Resources‚ Inc. is a global energy company that operates in oil and gas exploration and production (E&P)‚ refining and marketing (R&M)‚ and petrochemicals. Midland’s most profitable segment is its E&P division which produces 67% of the company’s net income (Exhibit 3). Its largest division is R&M with the Petrochemical division being the smallest. The primary goals of Midland’s financial strategy are to fund substantial overseas
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TANMAY GUPTA tg2311 American Chemical Corporation Cost of Capital : Collinsville Investment [pic] Where: Re = cost of equity Rd = cost of debt E = market value of the firm’s equity D = market value of the firm’s debt V = E + D Tc = corporate tax rate D/V and E/V Ratio: Since the target debt ratio of Dixon is given to be about 35%‚ we assume the target D/V ratio for Colinsville investment to be the same. Hence the E/V ratio
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