capital. Nova Chemical’s 1989 WACC Common Shares 15.2 (Exhibit 7) Price per Share 33.00 (5-Year Average) Equity (mkt value) 501.6 Bank Debt 84.5 (Exhibit 7) Current Portion LTD 10 (Exhibit 7) Long Term Debt 240 (Exhibit 7) Interest Bearing Debt 334.5 Source Amount (MM) % of Total Tax Cost Weighted Cost Debt (book value) 334.5 40.0% 6.6% 2.62% Equity (mkt value) 501.6 60.0% 17.6% 10.57% WACC 13.20% Average Tax Rate 40.0%
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Nike‚ Inc.: Cost of Capital Case 15 Financial Administration FINC 5713-180 Team 1 Fall 2013. October 8‚ 2013. Introduction Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund management firm‚ is considering to buy some shares from Nike‚ inc even if it’s share price had declined from the beginning of the year‚ for the Northpoint Large-cap fund she managed which invested mostly in Fortune 500 companies and it was doing well despite the decline
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Nike Inc. Case 1. What is the WACC and why is it important to estimate a firm’s cost of capital? WACC is weighted average cost of capital‚ which is the expected rate of return on average from all the company’s existing debts and securities. It takes into account all different types of financing in the company’s capital structure. The reason it is important to estimate WACC is because it measures what it costs the firm to take on a project based on its current Debt and Equity mix. When the
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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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this plant? All rights reserved - Christopher B. Alt 2 Key Steps in Capital Budgeting Estimate CFs (inflows & outflows) Assess riskiness of CFs Determine the appropriate cost of capital Find NPV and/or IRR Accept if NPV > 0 and/or IRR > WACC All rights reserved - Christopher B. Alt 3 Independent vs. Mutually Exclusive Projects Independent projects: if the cash flows of one are unaffected by the acceptance of the other Mutually exclusive projects: if the cash flows of one can
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1. Calculate TRUST’s company after-tax WACC. The risk-free rate was 4.21%‚ the market risk premium was 6% and the company tax rate was 30%. The WACC should be rounded to four decimal places. After-tax WACC = rD (1-Tc) D/V + rE E/V rE = rf + βequity(rm – rf) rE = 0.0421 + 0.81(0.06) rE = 0.0907 E = number of outstanding shares x current share price E = 60 million x $3.43 E = $205.8 million D = $44 million bank loans + $1.2 million short-term hire purchase commitments D = $45.2 million
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Corporate Finance 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? Definition of WACC (Weighted Average Cost of Capital): WACC is basically the average of the cost of finance (debt and equity). Since a company’s assets can be financed by debt or equity‚ WACC can show the averages of the costs involved in the sources of financing. These costs are then weighted
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1. Introduction & Case Assumptions The purpose of this Mini-case analysis is to go through the different possibilities for replacing or upgrading/overhauling ‘Vital Spark’ a cargo ship owned and operated by NETCO (The New Economy Transport Company). The part A of the case study focuses on the different options/projects available for the company to upgrade/overhaul the ‘Vital Spark’ cargo ship. The first option in this regard is to maintain existing engine and systems without installing a brand
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Large Aircraft (VLA) market for the last 30 years. In order to make the decision of whether to take on this project‚ Airbus needed to find out the net present value of this investment. In this case‚ our team used both weighted average cost of capital (WACC) and flow to equity (FTE) to analysis the whole undertaking. Assumptions Before getting into more details about the expected financial return from the investment‚ we need to clarify several key issues. First‚ the investment in the A3XX is incredibly
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The Boeing 7E7 WACC Estimation In order to evaluate the prospective IRRs from the Boeing 7E7‚ we first try to estimate an appropriate required rate of return for accepting this project. The capital asset pricing model is applied to estimate the cost of equity of the commercial aircraft division: R_EC= β_EC*(R_M-R_f )+R_f where REC is the cost of equity capital of the commercial aircraft division. βEC is the beta for the commercial division of Boeing. This beta is used instead of the company’s
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