6% | 6% | Cost of equity | 9.8% | 10.7% | 12.2% | WACC | 9.8% | 9.0% | 8.4% | EBIT | 1‚485.00 | 1‚485.00 | 1‚485.00 | Taxes 34% | 504.90 | 504.90 | 504.90 | EBIAT | 980.10 | 980.10 | 980.10 | Depreciation | 500.00 | 500.00 | 500.00 | Capital expense | (500.00) | (500.00) | (500.00) | Change in net working capital | 0.00 | 0.00 | 0.00 | (Free cash flow)FCF | 980.10 | 980.10 | 980.10 | Value of Assets (FCF/WACC) | 10‚001.02 | 10‚851.11 | 11‚701.19 | | | |
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When companies invest their money they need to earn a rate of return that exceeds their cost of capital. We can estimate a company’s cost of capital in the following way: WACC = (rD)(1-T)(WD) + (rS)(WS) Go to one of the databases from Part 1 of the Course Project and look up the most recent 10-K for your company‚ paying special attention to the balance sheet and the footnotes. Although we should use market value weights when determining a firm’s cost of capital‚ this may be difficult to
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On the other hand‚ when getting too low estimate on cost of capital‚ midland will estimate the new investment with higher NPV. Midland might waste much money on many bad investments which are overestimated. 2. Calculate Midland’s firm-wide WACC. Make sure you explain clearly your method and your choice of inputs. In particular‚ is Midland’s choice of market risk premium appropriate‚ and if not‚ what recommendations would you make and why? Material: a. Debt is long-term in nature
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assets P.P.E. Intangibles (Patents) Goodwill Accounts payable Invested capital: Costly WACC D/D+E x rd x (1 – taxrate) + E/D+E x re After-tax average Interest rate D = All the interest bank loans re= required rate of return = cost of equity = required rate of return demanded by shareholders rd = interest rate re>rd (Inventories + accounts receivable) - accounts payable = networking capital (NWC) ROIC target = WACC WACC + extra If a company wants to raise the ROIC‚ ebit has to go up‚ nwc down‚ ppe down
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concluding on a firm’s optimal capital structure‚ Opler and Titman (1994) discovered that it is substantially difficult to quantify. While Wrigley’s has been given a B/BB rating‚ due in part to their interest coverage ratio of 1.47; due to the fact that WACC has only increased 0.01%‚ it can be
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better served with the tax or other benefits that additional leverage would provide. In addition‚ this option could be a signal to the financial markets that MCI is trying to change their capital structure to move closer to their minimum WACC. As we know‚ minimizing WACC will maximize a firm’s value. The second option‚ open market repurchase‚ would likely send the message that MCI feels the stock is undervalued. However‚ the price of the stock would not likely rise as much as it would under a fixed
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| Table of Contents Cost of Capital 2 Value of Equity 2 Cost of Equity 2 CAPM Model 2 Dividend Growth Model 3 Value of Debt 3 Cost of Debt 4 WACC (Weighted Average Cost of Capital) 4 Comparison to Joanna Cohen’s Analysis 4 Financial Statement Analysis 5 Nike Inc. 5 Financial Ratios 6 Leverage Ratios 6 Efficiency Ratios 6 Liquidity Ratios 7 Profitability Ratios 7 Valuation Ratios 7 Conclusion 8 Appendix A – Ratio Calculation 9 Leverage Ratios 9 Efficiency Ratios 9 Liquidity Ratios
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Cost of Debt is the interest rate and the Cost of Equity is the expected rate of return demanded by investors in the firm’s common stock. The issue at hand is finding the correct costs of debt and equity in order to find an accurate calculation of WACC. Cohen used the 20-year yield on U.S. Treasuries as the risk free rate‚ which we found to be the correct figure given that Nike Inc. debt was valued over 25 years. Because there is no other given yield that is comparable to a 25-year valuation period
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Modèles du Free Cash Flow Thèmes choisis en gestion – États financiers et placements (ADMI 3500) Les exemples sont tirés du livre : Stowe‚ J. D.‚ Robinson‚ T.R.‚ Pinto‚ J. E. et Henry ‚ Equity asset valuation‚ Second Edition‚ 2010‚ CFA Institute Investment Series 2 1. Introduction Les modèles d’évaluation basés sur les flux monétaires actualisées (DCF model) considèrent la valeur intrinsèque d’une action comme étant la valeur actualisée des flux monétaires espérés. Dans ce chapitre
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To: Kim Ford Date: 2/13/13 Subject: Nike’s Cost of Capital I agree with Ms. Ford’s estimate of Nike’s Cost of Capital at 8.4% The WACC is the appropriate method for valuing Nike’s capital. The WACC takes your cost of debt x the percent of capital + CAPM x equity percent of capital and it tells the rate of return the company needs to return based on its capital structure. In my opinion Ms. Ford has correctly assumed Nikes cost of debt and cost of equity. Her projection for cost of debt uses
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