would you identify an organization’s optimal cost of capital? Is the cost of capital increasing or decreasing for most companies? What is meant by Weighted Average Cost of Capital (WACC)? What are the components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term
Premium Net present value Investment Weighted average cost of capital
After calculating the FCF for all the projects‚ we got the IRR’s for each project. We got an IRR of 0% for project A‚ 32% for project B‚ 34% for project C‚ and 43% for project D. Similarly we got the NPV for each project using a WACC of 10% and 35%. Using the 10% WACC we got an NPV of -$1‚229‚980 for project A‚ and $3‚016‚880 for project B‚ and $5‚281‚910 for
Premium Net present value
run? ●After borrowing $ 3 billion dollars what would the impact on the company’s debt rating be? ●What’s the impact on the company’s share value; would the recapitalization increase the company’s share value? ●What’s the impact on the company’s WACC‚ an increase or decrease? ●Would recapitalization increases the EPS of the company? Hypothesis “Whether the proposed leveraged recapitalization is efficient for Wrigley
Premium Finance Stock market Stock
capital structure effects. Be sure to identify the ways in which capital structure can affect the weighted average cost of capital and free cash flows. The value of a firm’s operations is the present value of its expected future FCF discounted at its WACC. Some
Premium Finance Corporate finance Weighted average cost of capital
recommended a strong buy while others expressed misgivings and recommended a hold. At this point‚ North Point Group decided to do their own analysis in order to decide if Nike shares should be purchased for the fund. The weighted average cost of capital (WACC) is the rate that a company is expected to pay its debt and equity holders to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its owners‚ creditors‚ and other providers of capital or they will
Premium Stock Weighted average cost of capital Financial markets
selected. Consequently‚ the company’s growth would be hurt as well. Hence‚ the calculation of costs of capital for use as hurdle rates is essential for managing the company’s growth. The cost of capital is computed using Weighted Average Cost of Capital (WACC) technique which is the weighted average of cost of equity and cost of debt of the firm or division. The cost of debt is the current borrowing rate at the time of the analysis (1988). The costs of floating rate debt and fixed rate debt are determined
Premium Weighted average cost of capital
Average Cost of Capital (WACC) Calculations The weighted average cost of capital (WACC) is the discount rate used in the discounted cash flow analysis. Usually‚ the WACC is the weighted average of the cost of debt (Kd) and the cost of equity (Ke)‚ since debt and equity are the most common sources of funds for the companies. In general‚ the formula for WACC is the following: As implied by the formula itself‚ if a company does not have interest-bearing debts‚ then its WACC would equal to its cost
Premium Weighted average cost of capital Discounted cash flow Capital structure
Cost of Capital Firms need to make capital investment i.e.‚ purchasing fixed assets such as factories‚ machineries‚ equipment‚ etc. After deciding what capital investments to make‚ they need to decide on the financing – sources of capital. The sources: Long-Term Debt‚ Common Stock‚ Preferred Stock and Retained Earnings. Then they need to find the cost of obtaining each source of financing today (not historical). Cost of Capital - The rate of return that a firm must earn on its investment
Premium Finance Investment Rate of return
Table of Contents 1.0 Introduction In June 2002 Blanka Dobrynin‚ a managing director of Aurora Borealis hedge fund‚ considers the possible gains from increasing the debt capitalization of The Wm. Wrigley Jr. Company. Blanka suggests Wrigley raise the amount of $3 billion in debt of the capitalization while Wrigley has been conservatively financed and remained no debt at the end of 2001. This report is aiming to analyze whether Wrigley should use $3 billion debt recapitalization
Premium Finance Weighted average cost of capital Stock market
cash flow: 25 4.3 Weighted Average Cost of Capital (WACC) 25 4.3.1 Value of Debt and cost of debt: 25 4.3.2 Value of equity and cost of equity: 26 4.3.3 Weighted Average Cost of Capital (WACC): 27 4.4 Value of Harvey Norman Holding Ltd and estimated share price: 28 4.5 Sensitivity Analysis: 28 4.5.1 Operating revenue and share price: 29 4.5.2 Share price as a function of terminal FCF growth and WACC: 30 4.6 Share price assessment and investment decision:
Premium Finance Weighted average cost of capital Stock market