0) SEE ATTACHED SPREADSHEET FO COMPLETE CALCULATION 4. (10) In an M&M world with NO TAXES (perfect capital markets)‚ Dozer Inc. is a no growth firm and pays out all of its earnings as dividends. It is originally all equity financed (unlevered). The firm decides to issue $2‚700‚000 in debt to repurchase stock. The return on debt is 10%. Fill in the table
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Marriott Corporation Evaluating the cost of capital 1. What is the weighted average cost of capital for Marriott Corporation? 1 (a) What risk-free rate and risk premium did you use to calculate the cost of equity? R (f)‚ or risk free rate used for calculating cost of equity was the Geometric Mean (GM) for LT US govt. bond returns (Exhibit 4). We used the overall GM of 1926-1987 of 4.27%. This is because this is the period that Marriott has been in operation and would be a good reflection
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HPL Case Tianli Feng Mengting Xia Qiang Luo Xian Li 1. How would you describe HPL and its position within the private label personal care industry? HPL manufactures soap‚ shampoo‚ mouthwash‚ shaving cream‚ and sun scream for retailers in US and these products are sold under the brand label of a third party. The company is a major player in the $2.4 billion private label personal care industry‚ with a market share of a little more than 28%. HPL’s focus on manufacturing efficiency‚ expense
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your specific assumptions about the various inputs adopted into equations. For example‚ the team is expected to suggest the proposed market risk premium. ➢ WACC should be estimated for the overall firm ▪ CAPM – equity beta vs. asset beta - see Section F • Compute a separate cost of capital (WACC) for the lodging business‚ contract services business and restaurant business. ➢ How was cost of debt measured of each division? Should the cost of debt differ across
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DOL AND DFL COMPARISION Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes (EBIT) Financial Leverage is concerned with the relationship between the firm’s (EBIT) and its common stock earnings per share (EPS) DOL |Company /year |2010 |2009 |2008 |2007 | |ntpc |1.12 |-0.44 |0.87
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risk (beta)‚ which includes risks that are not unique to a particular project and not easily manageable by a project team at a given point in time. How can the C.A.P.M be used to estimate the cost of capital for a real (not financial) investment decision? C.A.P.M describes the relationship between risk and expected return of the investment. In order to use the CAPM to estimate the cost of capital for this investment decision‚ we need to identify comparable companies‚ extract their unlevered beta
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The Boeing 7E7 Boeing is one of the largest and one of the most well-know companies for their aerospace developments in the commercial airplane and integrated defense systems markets. At this time the company currently lost its number one position in the commercial airplane market to Airbus‚ whom has over 50% market share in units sold and in dollar value of sales received. Boeing’s company is composed 54% from their commercial segment and 46% from their defense system segment. Earlier this year
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these costs grew‚ on average‚ 7.25% per year. Calculations are stated in Appendix 1. 2- The Discounted Cash Flow (DCF) and the Adjusted Present Value (APV) are the two models that can be used to valuate this project. Under DCF‚ the stream of the unlevered free cash flows generated by the project are discounted using WACC‚ which includes the effects of financing as well as other different sources of risk (such as equity).
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Valuation- “projected financial performance into values.” Involves projecting/ making budgets. Value of an Asset = Value of Cash Flow (CF) it Will Generate (not profits) CF=1/(1+r)^1 value is based on three things- Current Cash Flow‚ Expected growth (used with to estimate future cash flow)‚ Riskiness of expected future cash flow (discount rate).Net Present Value- Value CFs using project discount rate based on risk Investment Decision-which real assets the firm should acquire.Choose positive and
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the straight-line method. The firm expects the fleet of 25 cars to generate $100‚000 per year in earnings before taxes and depreciation for five years. Hertz is an all-equity firm in the 34-percent tax bracket. The required return on the firm’s unlevered equity is 10 percent‚ and the new fleet will not add to the risk of the firm. a. What is the maximum price that Hertz should be willing to pay for the new fleet of cars if it remains an all-equity firm? b. Suppose Hertz purchases the fleet from
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