Identify some of the factors that affect the overall‚ composite cost of capital. • Briefly explain how firms should evaluate projects with different risks‚ and the problems encountered when divisions within the same firm all use the firm’s composite WACC when considering capital budgeting projects. • List and briefly explain the three separate and distinct types of risk that can be identified‚ and explain the procedure many firms use when developing subjective risk-adjusted costs of capital.
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be issued. Calculate the firm’s composite‚ or weighted average‚ cost of capital. Identify some of the factors that affect the WACC—dividing them into factors the firm cannot control and those they can. Briefly explain how firms should evaluate projects with different risks‚ and the problems encountered when divisions within the same firm all use the firm’s composite WACC when considering capital budgeting projects. List some problems with cost of capital estimates. Lecture Suggestions
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York University Faculty of Liberal Arts and Professional Studies School of Administrative Studies AP/ADMS 3530 3.00 Finance Summer 2013 Course Outline - Preliminary Instructors and Class Hours Dayna Patterson dpatters@yorku.ca Sam Alagurajah salagura@yorku.ca Muz Parkhani parkhani@yorku.ca Lois King loisking@yorku.ca Section A‚ Tues. 11:30am-2:30pm SLH E Section B‚ Thur. 4 - 7pm‚ SLH E Section C‚ Wed. 7 – 10pm‚ TEL 0010 Section D‚ Internet Course Description This course introduces
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are 6 questions. Attempt all questions. Show all workings. Write answers in the spaces provided. Illegible handwriting risks loss of marks. Materials Allowed: No dictionaries are permitted. A non-programmable calculator (no text retrieval capacity) is permitted. Financial calculators may be used. Mobile telephones must be turned off and left at the front of the room. Question: Out of: Mark: 1 A 60 1 6 2 12 3 8 4 12 5 13 6 9 Total 120 PART A (60 Marks) There are
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3530 F10 Final Exam and Solutions - Type A 1. Two years ago Zippy Inc. issued a zero-coupon bond with a $1‚000 face value and a ten year maturity. If the bond’s yield to maturity today is 3.50%‚ what is the current price of the bond? (assume annual compounding) A) $708.92 B) $759.42 C) $825.50 D) $933.51 E) $1000 Solution B PV of bond = 1000/(1.035)^8 = $759.41 2. Topaz Bank’s earnings and dividends are expected to grow at a rate of 10% during the next 2 years‚ at 8% in the third year‚ and at a constant
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both on top-line growth and operating performance. The company’s cost of capital is a critical element in such decisions and it is important to estimate precisely the weighted average cost of capital (WACC). In our analysis‚ we examine why WACC is important in decision making and we show how WACC for Nike Inc. is calculated correctly. Also‚ we calculate the company’s cost of equity using three different models: the Capital Asset Pricing Model (CAPM)‚ the Dividend Discount Model (DDM) and the Earnings
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possible place in the NorthPoint Large-Cap Fund‚ Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically‚ the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses‚ be it debt or the many types of equity‚ by their respective weights. It is the rate of return that a company needs
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year for the next 2 years‚ then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2‚ the risk-free rate is 7.5%‚ and the market risk premium is 4%. What is your estimate of the stock’s current price? I used the financial calculator online for this problem‚ but we can find it manually... To solve this problem we need to first calculate the required rate of return‚ which is Rs=Rf+B(Rrm-Rrf)‚ so 7.5+(11.5-7.5)*1.2=12.3... So‚ D0 would be 2‚ D1 would be 2.4‚ D2 would be 2
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Abstract Ralph Lauren Corporation (NYSE:RL) is well known in the apparel clothing field. The corporation engages in the design‚ marketing and distribution of lifestyle product. This analysis paper will illustrate the current financial situation and forecast the future free cash flow based on the previous financial statement and financial data collected. These information and forecast are served for the potential investor to have a general understanding of RL Corporation and make the right choice
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If the firm’s cost of capital is 14 percent and its tax rate is 40 percent‚ what is the project’s IRR? IRR Financial calculator solution: Inputs: CF0 = -200000; CF1 = 44503; Nj = 10. Output: IRR = 18%. 4) St. John’s Paper is considering purchasing equipment today that has a depreciable cost of $1 million. The equipment will be depreciated on a MACRS
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