American Finance Association Market Timing and Capital Structure Author(s): Malcolm Baker and Jeffrey Wurgler Source: The Journal of Finance‚ Vol. 57‚ No. 1 (Feb.‚ 2002)‚ pp. 1-32 Published by: Wiley for the American Finance Association Stable URL: http://www.jstor.org/stable/2697832 . Accessed: 08/09/2013 22:22 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use‚ available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a
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CHAPTER 18 VALUATION AND CAPITAL BUDGETING FOR THE LEVERED FIRM Answers to Concepts Review and Critical Thinking Questions 1. APV is equal to the NPV of the project (i.e. the value of the project for an unlevered firm) plus the NPV of financing side effects. 2. The WACC is based on a target debt level while the APV is based on the amount of debt. 3. FTE uses levered cash flow and other methods use unlevered cash flow. 4. The WACC method does not explicitly include the interest cash
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does Marriott use its estimate of its cost of capital? Does this make sense? Marriott has defined a clear financial strategy containing four elements. To determine the cost of capital‚ which also acted as hurdle rate for investment decision‚ cost of capital estimates were generated from each of the three business divisions; lodging‚ contract services and restaurants. Each division estimates its cost of capital based on: Debt Capacity Cost of Debt Cost of Equity All of the above are calculated
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ways to revitalize the company‚ since share price was beginning to decline and revenues had plateaued at around $9 billion. Although Nike projected a rosy future‚ many analysts had mixed reactions to the projections. Ford was right to come up with her own forecast‚ seeing as the reactions ranged from too aggressive to growth opportunities. In order to completely analyze Nike and its possible place in the NorthPoint Large-Cap Fund‚ Ford needs to know Nike’s cost of capital. One of the most useful
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Executive Summary The case‚ Marriott Corporation: The Cost of Capital (Abridged)‚ concentrates on making decisions based on capital asset pricing model (CAPM) and the weighted average cost of capital (WACC) to measure the opportunity cost for investments. Dan Cohrs‚ the Vice President of Finance of Marriott Corporation‚ had to deal with making recommendations for the hurdle rates at Marriott Corporation and its three divisions which are lodging‚ restaurant and contract services. In calculating
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The Cost of Capital LEARNING OBJECTIVES After reading this chapter‚ students should be able to: • Explain what is meant by a firm’s weighted average cost of capital. • Define and calculate the component costs of debt and preferred stock. • Explain why retained earnings are not free and use three approaches to estimate the component cost of retained earnings. • Briefly explain why the cost of new equity is higher than the cost of retained earnings‚ calculate the cost of new
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1. What is the weighted average cost of capital for Marriot Corporation? Briefly outline the key assumptions that you made in computing the WACC. 2. What is the cost of capital for the lodging and restaurant divisions of Marriot Corporation? Briefly outline the key assumptions that you made in computing the cost of capital and outline any limitations that are presented by your analysis. 3. If Marriot uses a single company-wide cost of capital for evaluating investment opportunities in each of its
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Part 1 of this paper will look at the three most common models used for estimating the rate of return for a given company; dividend growth‚ Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT). The board of directors for Apple Computer Corporation will receive this report‚ and based on the findings and analysis included‚ Apple will be given a recommendation as to the cost equity model they should implement to estimate their future rate of returns. This report will discuss the accuracy
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Chapter 9 Cost of Capital 1. What is the WACC? a. Weighted Average Cost of Capital- most firms employ different types of capital‚ and because of their differences in risk‚ the difference securities have different required rates of return. Typically=debt‚ preferred stock and common equity. 2. What precautions must we take when measuring the WACC to use for capital budgeting decisions (future investment)? b. The company’s current and recent past book and market value structures
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Capital Structure: The most important function of Financial Management is to make decisions about the capital structure of firm. Capital structure refers to the make up a firm’s capitalization. It represents the mix of different sources of long term funds in the total capitalization of the company like equity shares‚ preference shares‚ retained earnings‚ long-term loans etc. In other words it can be precisely told as financing plan of the company. Capital is required to finance investments in plant
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