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
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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
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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
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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
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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
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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
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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
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earnings as evaluated is questionable. Under the value-creating investment prong‚some projects were considered as future equity cash flows using the cost of equity as the discount rate instead of the hurdle rate based on the project or divisional WACC. The calculation of EVA (economic value added) was manipulated by a “capital charge” and the “capital charge” was
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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
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possible place in the NorthPoint Large-Cap Fund‚ Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically‚ the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses‚ be it debt or the many types of equity‚ by their respective weights. It is the rate of return that a company needs
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