analyzes the economics and incentives of carried interest and compares with Capital Cash Flow. The value of debt equals the tax shield generated by each strand of debt. While the equity can be valued by discounting the Capital Cash Flows with the unlevered cost of equity capital. The management’s calculations are evaluated and complemented to arrive at a proposed bid price for the Yell Group. 2. The Apax/Hicks Muse (PE firms) team used the “sum of part” approach to value Yell while working on the
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between 1990 and 2024. 2. First step of calculating cost of capital for 777 project is calculating Boeing’s levered beta. To calculate Boeing’s levered beta‚ we have to calculate unlevered betas of Grumman‚ Northrop‚ Lockheed and Lockheed then we have to take average of these betas. (0.369) Boeing’s levered beta is calculated as 0.373. Then we calculate Boeing’s commercial division beta which is 0.964. Then we calculate cost of equity (14.3%) and cost of debt (9.67%). Then finally the cost of capital
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Cost of Capital Estimate for Midland Energy Resources‚ Inc. In the first section of my report‚ I list out the main models and methods applied to estimate the cost of capital for Midland’s three divisions‚ general assumptions made and the corresponding justifications. In the second section‚ Calculations‚ I not only compute the cost of capital based on the general assumptions previously made‚ but also discuss specifics of each division and the additional adjustments or assumptions made to justify
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Marriott Case 1. What is the WACC for Marriott Corporation? Cost of Debt Tax Rate We determined this number by taking income taxes paid/EBITDA = 175.9/398.9 = 44.1% Return on debt There are two clear components of debt: fixed and floating. In order to get the fixed debt rate we took the interest rates on fixed-rate government securities and added the premium
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real world including terrorism and infectious disease‚ Boeing would need to weigh all considerations before making final decision to proceed the plan. In this case‚ we cautiously made assumptions when estimating cost of debt‚ commercial-defense beta ratio‚ risk free rate and risk premium. And finally estimated the project’s weighted-average cost of capita l(WACC) against the given internal rates of return(IRR). 2. Capital Budgeting Decision Rule According to detailed
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Week 2 Assignment Chapter 15 Bickley Engineering Company has a capital structure of 30% Debt and 70% Equity. Its current Beta is 1.3‚ and its Market Risk Premium is 7.5% Points. The current Risk Free Rate is 3.5%. Bickley’s marginal tax rate is 40%. What is the Unlevered Beta of Bickley? Unlevered beta = levered beta/(1+(1-T) D/E) = 1.3 /(1+(1-0.4)X(0.3/0.7) = 1.03 Bickley’s management would like to change its capital structure to 15% Debt and 85% equity by retiring its bonds yielding
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use the equity beta provided in exhibit 3 of the case study. We use the market leverage percentage (also in exhibit 3) to get the book debt/equity ratio and find the unlevered beta. We chose to use the market leverage ratio of 41% instead of the market debt to equity ratio in exhibit 1 of 58.8% so that we are consistent with the calculations WACC for the three divisions of Marriott. To calculate the unlevered beta we use Hamada’s formula (Fernandez‚ 2003). Unlevered Beta = Equity Beta / (1 + (1 – tax
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before LODGING Step 1: Calculate unlevered beta using similar companies Hotel Beta (β) Debt (D/V) E/V D/E Tax Unlevered Beta (βu) Sales Weigh. Avg. Sales HILTON HOTELS CORPORATION 0.76 14% 86% 0.16 44% 0.70 0.77 23% HOLIDAY CORPORATION 1.35 79% 21% 3.76 44% 0.43 1.66 50% LA QUINTA MOTOR INNS 0.89 69% 31% 2.23 44% 0.40 0.17 5% RAMADA INNS‚ INC. 1.36 65% 35% 1.86 44% 0.67 0.75 22% Total Sales 3.35 Calculate unlevered beta for the Marriott Lodging using
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capital for the Marriott Corporation and cost of capital for each of its divisions? – What risk-free rate and risk premium did you use to calculate the cost of equity? – How did you measure the cost of debt? – How did you measure the beta for each division? Solution What risk-free rate and risk premium did you use to calculate the cost of equity? – Risk-free rate proxy The risk-free rate is determined using the yields of U.S. Treasury securities‚ which are risk-free from
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Case Study: Marriott Corporation The Cost of Capital Teresa Cortez Keith Gemmell Brandon Papsidero Robin Reschke October 28‚ 2013 Table of Contents 1. Are the four components of Marriott’s financial strategy consistent with its growth objective? ..................................
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