capital strategy and repurchase undervalued shares. To accomplish all these goals the company has asked Janet Mortensen‚ Vice President of finance for Midland energy resources‚ to calculate the weighted average cost of capital (WACC) for the company as a whole. Formula: WACC = rd (D/V) (1-t) + re (E/V) Where‚ rd = cost of debt; re= cost of equity; D = Market value of debt; E= Market value of equity; V= Market Value of the company (D+E); t= Tax rate. Risk Free Rate‚ rf: Midland’s borrowing capacity
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refer to your Essentials of Business I Corporate Annual Report project for the appropriate ratios.) Comment on the financial health of the company. Please look at ratio trends and compare to industry average. (4) WEIGHTED AVERAGE COST OF CAPTIAL (WACC): Estimate the components of the cost of capital for your company using market data. a)
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Ratio ROE = Net Income/ Stockholders Equity = 2526 / 19496 = 12.95% PR = Dividends per Share / Earnings per Share = .40 / .76 = 52.6% SGM = 12.95% * (1-52.6%) = 12.95% * (.474) = 6.14% Calculating WACC: First step in calculating WACC is to use the Capital Asset Pricing Model (CAPM) CAPM = Rf + Beta (MRP) Rf = Risk Free Rate Beta = Market figure as to how stock reacts to market fluctuations MRP = Market return rate – risk free rate Rf = 7
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Capital assumption of John Adams. 2) WACC Estimate: John Adams used the following parameters/assumptions in his WACC calculations: Rf: 7% Market Risk Premium (“MRM”): 7% Beta Arch: 1.6 Borrowing Rate: 11% Eqity/Debt Ratio: 40% / 60% And based on these: Re= Rf+ βArch x MRP = 7% + 1.6 x 7% = 18.2 % WACC = 0.4 x Re + 0.6 x Rd and accepted tax shield from cost of debt as “0” due to the “0” tax cost of the company during the forecasted period. WACC = 0.4 x 18.2% + 0.6 x 11.0% = 13.88% =>13
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EPPM3644 KEWANGAN KORPORAT DAN PENSTRUKTURAN SET: 3 REPORT OF CASE STUDY: CASE 19 WORLDWIDE PAPER COMPANY PROFESSOR: DR. LIZA MARWATI BINTI MOHD YUSOFF GROUP MEMBERS: LOH CHAI LING A140178 GOH HOOI SAN A139708 KERK (KEH) YIH JEN A139574 SEMESTER 2‚ 2013/2014 INTRODUCTION In December 2006‚ Bob Prescott‚ the controller for the Blue Ridge Mill‚ was considering the addition of a new on-site longwood woodyard. Two primary benefits for this new addition include eliminating
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1) Why is Flagstar in financial distress? When possible‚ back your claims with data. Signs of financial distress • The company lost money almost every year since its leveraged buyout by Coniston Partners in 1989. The income generated was not sufficient to service the interest expenses of the company which stood at $2.62B in 1996. From Exhibit 1‚ we can say that interest coverage ratio computed as EBIT / Interest Expense was 1.31 in 1989 and has been decreasing over years and currently stands at
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WACC calculation: 1) Lodaging: For Risk free rate‚ we use the 30-year U.S. government interest rate to match the duration of lodge. rf = 8.95% For the expected return of the market portfolio‚ we use the average of S&P 500 index returns from 1926 – 87 as the proxy. rm = 12.01% Therefore‚ the Market Risk Premium‚ MRP = rm - rf = 12.01% - 8.95% = 3.06% The debt rate spread of lodging = 1.10% βD = spread of lodging / MRP = 1.1 / 3.06 = 0.3595 rD = rf + MRP * βD = 8.95% + 3.06% * 0.3595
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stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding using the treasury stock method Modeling the weighted average cost of capital (WACC) Sensitivity analysis using data tables Modeling synergies ***************************** SAMPLE PAGES FROM TUTORIAL GUIDE ***************************** DCF in theory and in practice DCF in theory • The DCF valuation approach is based upon the
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life of the project. project’s debt financing is unknown over the life of the project. Both A and B. Both B and C. 2. award: 1.00 point Calculate the Horizon Value in 2013 for XYZ Manufacturing Company if Free Cash Flows in 2013 are $678‚ WACC= 12.5%‚ and growth rate is 4%. Assume growth is expected to be constant after 2013. $12‚245.67 $3‚231.31 $8‚295.53 $375.28 $19‚231.45 3. award: 1.00 point National Electric Company (NEC) is considering a $40 million project in its power systems
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Mercury Athletic Footwear Case Assignment Questions: 1. Is Mercury a good target for AGI? Discuss strategic fit of brands‚ products‚ customers‚ and distribution. Identify specific sources of value. Discuss AGI’s strengths/weaknesses compared with other bidders. I think Mercury is a good target for AGI: The brands--the AGI brands and logos are associated with a lifestyle that was prosperous‚ active and fashion-conscious. The Mercury brands are athletic and casual footwear. The products--AGI focused
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