Fin 3010 Dr. Michello Summer 2007 Practice Problems Expected dividend yield Answer: a EASY i. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected dividend yield for the coming year? a. 5.0% b. 6.0% c. 7.0% d. 8.0% e. 9.0% Expected return‚ dividend yield‚ and capital gains yield Answer: e EASY ii. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected capital gains yield for the coming year? a. 5.2% b. 5.4%
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are BEA’s new beta and cost of equity if it has 40% debt? - BEA’s new beta βL = βLใหม่ = (0.87) βLใหม่ = 1.218 - BEA’s cost of equity RsL = RF + βL(RM - RF) = 6% + (1.218)(4%) = 10.872% c. What are BEA’s WACC and total value of the firm with 40% debt? - BEA’s WACC WACC = = (9%)(1-0.4)(0.4) + (10.872%)(0.6) = 8.683% - BEA’s total value of the firm V0 of firm = ‚ g = 0% = = = = $103‚188‚000 Problems (26-9) International Associates (IA) is about to commence operations
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----------------------------------- Jul 23‚ 2006 Industry Report of the FMCG sector profiling P&G‚UL‚KMN‚ ----------------------------------- Financial Statement Analysis In the healthy and growth inducing economic scenario of the 2000’s‚ P&G has seen double digit revenues growth to around $56b in 2005. Keeping its costs low has seen it achieve healthy profit margins of around 11% - 12%. Refer Table 1. Table 1 Margins P&G (in %) 2003 2004 2005 Gross Margin 49 51
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Ford Motor Company (NYSE: F) Ford Motor Company – A History Vehicle History Ford Motor Company was founded by Henry Ford in Detroit‚ Michigan. Ford was a skilled craftsman‚ who used his skills to create an experimental car in 1896. He created a two cylinder vehicle that was capable of going up to 20 mph. Ford left his primary job in 1899 to create Detroit Automobile Company and produced the Model A in 1903. The car had an under the floor engine and sold for $850. This car sold 1‚708 units
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broke. Question #5 How does WACC change over time? What do you think might drive the changes? WACC is the opportunity cost of investing in a company‚ or the expected return of shareholders and debt holders. WACC consists of all capital sources and includes common stock‚ preferred stock‚ short-term debt and long-term debt in the calculation. WACC is the average costs of capital financing‚ and tells us how much a company has to pay for each dollar of financing. WACC for any company will fluctuate
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Once funded‚ a project/investment’s performance was measure in two ways. The first being actual performance vs forecasted plan over 1‚ 3‚ and 5 year periods‚ and the second being Economic Value Added (EVA). EVA was calculated as: EVA = EBIT(1-t) – WACC(period capital expenditure) Midland Energy Capital Planning Model • Optimize capital structure • Midland primarily optimized its capital structure by taking advantage of the borrowing capacity inherent in its energy reserves and long term assets
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Percentage of; Calculation Weight by % Bonds Additional bond 50 million / 1‚120 million 45 million / 1‚120 million 4.46 4.02 Preferred stock 1‚000 million / 1‚120 million 89.29 Common stock 25 million / 1‚120 million 2.23 Total 100 iv) New WACC calculation WACC = (% of debt) (After-tax cost of debt) + (% of preferred stock) (cost of preferred stock) + (% of common stock) (cost of common
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while PepsiCo’s EVA has been increasing (see Exhibit 1.1). Coca-Cola’s NOPAT has decreased in recent years as a result of slowing sales growth and worsening profit margins. If it were not for Coca-Cola’s decreasing WACC‚ its EVA would decrease more rapidly. If Coca-Cola used a WACC of 12%‚ about the average of the past seven years‚ its EVA would have been $445‚000‚000 in 2000. PepsiCo was able to more than double their EVA in
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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
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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
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