1) Estimate the WACC that is appropriate for discounting the Collinsville plant’s incremental cash flows. You should estimate and present each component of the WACC separately‚ explaining briefly but clearly what assumptions you are making for each of them. In the same spirit‚ estimate the appropriate all-equity cost of capital for the APV-based valuation. WACC calculation. WACC = RD*(1-t)*D/(D+E)+RE* E/(D+E) Cost of equity We assume that risk free rate (Rf) equals rate of long-term Treasury
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and repurchase undervalued shares. Janet Mortensen‚ the senior vice president of project finance for Midland Energy Resources‚ has been involved in estimating the cost of capital of the company. She calculated the weighted average cost of capital (WACC) for the company as a whole‚ as well as each of its three divisions. The estimates are used for asset appraisals for capital budgeting and financial accounting‚ performance assessments; merger and acquisition proposals and stock repurchase decisions
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of return. 4. Using Pamela’s methodology of adjusting the firm’s hurdle rate based on the relative variable of each division’s sales in relation to that of the consolidated firm‚ calculate the divisional hurdle rates. 13.86 11.11 11.40 12.48 WACC(defence products) = 12.48% * 1.11 = 13.86 5. Comment on this methodology of estimating the divisional hurdle rates. Do you agree with it or not? Explain your
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Pontrelli Recycling Sara Doyle‚ Kevin Jackson‚ and Ali Lakhani FIN/575 Michael Plesko January 20‚ 2014 Pontrelli Recycling Pontrelli Recycling‚ Inc. has a mission to “increase the efficiency of recycling usable materials in order to create a better environment for all‚” and to “create value and a fair return on investment for shareholders” (Callahan‚ Stetz‚ and Brooks‚ 2007). A project must always be aligned with the company’s strategy and financial goals. When devising any new project‚ a
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Foods. Process Steps 1. Estimate the WACC for Kraft 2. Calculate historic growth rate 3. Calculate the average income tax rate and determine the relationship between sales and cost of sales‚ capital expenditures‚ depreciation‚ and net working capital 4. Determine the sales growth rate required to meet Kraft’s 2016 sales projections 5. Project 5-year cash flows starting in 2012 and ending in 2016 6. Discount cash flow projections beyond 2016 at the WACC rate to estimate the projected firm value
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steady state assumption that the firm enjoys no opportunities for abnormal growth or that expected returns equal required returns in this interval. Once a schedule of free cash flows is developed for the enterprise‚ the Weighted Average Cost of Capital (WACC) is used to discount them to determine the present value‚ which equals the estimate of company or enterprise value. This note focuses on valuing
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Mercury Athletic Footwear: Valuing the Opportunity Active Gear‚ Inc. (AGI) is a privately held footwear company and is contemplating the possibility of acquiring Mercury Athletic Footwear. West Coast Fashions Inc.‚ a large designer and marketer of men’s and women’s branded apparel recently announced that it plans to shed its Mercury Athletic Footwear subsidiary. AGI’s head of business development‚ John Liedtke‚ believes acquiring Mercury Athletic Footwear is a good option for the company. Although
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(qualitatively) to value AirThread. Should Ms. Zhang use WACC‚ APV or some combination thereof? Explain. (2 points) * From the statement of AirThread case‚ we know that American Cable Communication want to raise capital by Leveraged Buyout (LBO) approach. This means ACC will finance money though equity and debt to buy AirThread and pay the debt by the cash flows or assets of AirThread. * In another word‚ it’s a highly levered transaction using a fixed WACC discount rate; however the leverage is changing
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on Nike Inc. What is the WACC and why is it important to estimate a firm’s cost of capital? The WACC is a firm’s overall cost of capital‚ taking into account the weighted average of its equity and debt costs of capital. A firm’s WACC is the minimum return (hurdle rate) required by its capital providers to stay invested. Therefore managers of a firm should only invest in projects that generate returns exceeding the firm’s cost of capital. For the company’s owners the WACC is the minimum rate that
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Chapter 9&10‚ financial policy 1) Duval Inc uses only equity capital‚ … answer: with a 11% return cuz wacc = 10% 2) 10.038: which one is correct? One defect of the IRR method that is assumes that the cash flows to be received from a project can be reinvested the IRR itself‚ and that assumption is often not valid. 3) Stern Associates is considering a project that has the following cash flows data. What’s the project’s payback? Year: from 0 to 5‚ cash flows: -1100$‚ 300$‚ 310$‚ 320$‚ 330$
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