Case Interco Introduction Interco is a shoe company founded in 1911. Its business has spread to other product through acquisitions. Equity analysts saw Interco as a conservative company that was not highly leveraged leading to high financial flexibility. This allowed the firm to repurchase share and make acquisitions when the opportunities were there. Interco has four major divisions; Apparel Manufacturing‚ General Retail Merchandising‚ Footwear Manufacturing and Retailing and Furniture and Home
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Part A After-TAX Cost Debt O’Grandy Apparel Company can calculate the after tax debt cost using YTM (CP + (FV-Nd /n) / FV +Nd /2) *2. Cp is (0.12/2) * 1000= 60 Semi-annually Fv is 1000 Nd is 995 – (0.025* 1000) = 970 N is 20*2 because it is semi-annually then you have to use Kdt= Kd+ (i-T) .The tax bracket is 40 percent. Now we can have the after tax debt when it is equal or smaller than $700000 Kd ( 1-T) = 0.1249 (1-0.4)= 0.07494. If it is more than $700000 it will be KD (1-t) = 0.18(1-0.4)
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Chpt.16 Financial Leverage and Capital Structure Financial Leverage Chapter Outline Financial Leverage Effect of leverage Break-even Analysis Homemade Leverage M&M Propositions (I & II): optimal D/E? No tax Corporate tax Corporate tax & bankruptcy costs Corporate & personal taxes Arbitrage The Capital-Structure Question and The Pie Model The value of a firm is defined to be the sum of the value of the firm’s debt and the firm’s equity. V=E+B If the goal of the management of the firm is
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CHAPTER 13 CAPITAL STRUCTURE AND LEVERAGE (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Conceptual Easy: Business risk Answer: c Diff: E [i]. A decrease in the debt ratio will generally have no effect on . a. Financial risk. b. Total risk. c. Business risk. d. Market risk. e. None of the above is correct. (It will affect each type of risk above.) Business risk Answer: d Diff: E [ii]. Business risk
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* PV(CF) = CF/(1+r)t AKA PV = FV/(1+r)t * NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C‚r) = C/r requires cash flow to begin NEXT period. If begin now‚ then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C‚r‚t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C‚r‚g) = C/(r-g) C is initial cash flow‚ r is discount rate
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Valuation models Discounted cash flow models: Dividend discount Free cash flow to the firm Residual income Multiples-based valuation: Price-earnings Value-EBITDA Value-EBIT Value-Sales Price-Book value Equity valuation In conjunction with the valuation of Coles Group‚ contained in “Excel03 Equity valuation” Real options valuation Equity markets price shares above the present value of expected future cash flows‚ due to the presence of embedded options not captured by DCF analysis Real
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percent‚ and the market risk premium is 6 percent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The impact of capital structure on value depends on the effect that debt may have on -WACC -FCF Debt holders have a prior claim on cash flows
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USEC Case Case Analysis In response to the Energy Policy Act of 1992‚ the United States Enrichment Corporation (USEC) was created to privatize uranium enrichment for civilian use (Wikipedia). In 1998‚ USEC went public‚ and has been operating as a leading global energy supplier of enriched uranium fuel for commercial nuclear power plants. The following report details USEC’s opportunity to embark on a massive capital-expenditure project known as the American Centrifuge Project (ACP). Currently‚
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3 Bank Muscat at Glance 4 Reasons of selecting Bank Muscat 5 The Analysis 6 Beat calculation 6 Comparison between risk and return in 2007 and 2008 7 Calculating WACC 8 Calculation of WACC on book value basis 9 Calculation of WACC on Market value basis 10 Conclusion 11 Introduction In my report as requested I picked one component of MSM30 Index sample. I have chosen to talk about Bank Muscat Share (BKMB) to analyze its
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going to calculate the WACC of the project and then compare it to the stated IRR of 15.7%. While this calculation of IRR is subject to other risks such as the amount of units sold expected‚ we are going to assume 2‚500 units will be sold annually over the first 20 years. It is also assumed that over the next 20 years world economies will grow by 3.2% annually and the relationship between air travel and GDP will continue which is growing at 5.1% annually. The calculation of the WACC is determined by using
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