Points) Sexton Inc. is considering Projects S and L‚ whose cash flows are shown below. These projects are mutually exclusive‚ equally risky‚ and not repeatable. Please determine the NPV‚ IRR‚ Profitability Index and Payback for these two Projects. WACC: 10.25% Year 0 1 2 3 4 CFS -$2‚050 $ 750 $ 760 $ 770 $ 780 CFL -$4‚300 $1‚500
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came up with 9.83% of WACC. Next‚ we calculated Deltex free cash flow and terminal value and then converted them into US dollar value. Now with WACC and total cash flow‚ we had NPV of the company. So we deducted current debt from NPV and came up with the value of US$360M investment equal to 59.99% of Deltex equity. So the proposal to buy 30% of Deltex with US$360M is too expensive to PepsiCo and not attractive to PepsiCo. If we look at the sensitivity analysis‚ we find as WACC increases‚ the percentage
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Marriot Case Brief 1. What is the weighted Average Cost of Capital for Marriot Corporation? WACC for Marriott Corp is 11.89 WACC of divisions: Lodging 10.29‚ Restaurant 13.49‚ Contract Services 13.615 a) What risk-free rate and the risk premium did you use to calculate the cost of equity? We used 8.95% as the risk free rate (LT Government Debt) and the MRP we used was 7.43%‚ which means are expected market return is 8.95+7.43=16.38% b) How did you measure Marriott’s cost of debt? We added
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division and company. Only project with positive NPV discounted by hurdle rate will be invested‚ and the total return of Marriott up to all projects invested. Though there are many subjective aspects in estimation of WACC‚ common view and accepted formula will be adopted to calculate WACC‚ discretion if prudent used. Key factors 1. Key factors of debt a) Tax rate Tax rate is based on state policy and net income of the company. Since tax rate of 1988 is not expected to change‚ tax rate of 1987 is
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Overview The footwear industry is a mature‚ very competitive with low growth and stable profit margins. Active Gear‚ Inc. is a privately held footwear company which is a profitable firm in the industry with $470.3 million revenue in 2006. West Coast Fashions‚ Inc is a large business of men’s and women’s apparel decided to dispose of one of their divisions: Mercury Athletic with $431.1 million revenue in 2006. AGI is very profitable but it is smaller than other competitors‚ which is becoming a competitive
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cost. Since WACC is the minimum return required by capital providers‚ managers should invest only in projects that generate returns in excess of WACC. There are four main issues: a) If Cohen should estimate different costs of capital for the footwear and apparel divisions or use a single one instead. I agree with the use of the single cost of capital. It is sufficient for this analysis‚ since Nike’s business segments have very similar risks. b) Calculating the Cost of Capital WACC: Cohen is wrong
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for investors as well as which firms should be identified as comparables. 1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland’s choice of equity market risk premium appropriate? If not‚ what recommendations would you make and why? 3. Should Midland use a single corporate
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Worldwide Paper Case Study Incorporated in 2001‚ Worldwide Paper Company (WPC) is a corporation which is always focus on providing finest paper products to its clients and stakeholders. Headquartered in UAE‚ WPC’s most sales are distributed from the regions of Middle East‚ Asia‚ Africa and Levant. As a global company nowadays‚ the area of operation of WPC includes paper trading-commodity and conventional grads‚ indenting and custom order-commodity and conventional grades‚ merchanting and stock
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to evaluate Nike as a viable choice‚ Kim has to calculate the cost of capital for the company and make sure assumptions are a direct function from the estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However‚ the assumptions made to calculate WACC‚ in this case‚ are the underlying problem because some of the assumptions made are incorrect. Analysis Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the
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There are several different methods that can be used to find the WACC and use it to decide whether a stock will be a good buy or not. The Earning’s Capitalization Model is not appropriate in this case because it does not work well for growing companies‚ as Nike is trying to do‚ and the Dividend Discount Model has several subjective inputs making it inferior to the CAPM method of determining WACC. Using this method Nike’s WACC is found to be 9.8%. Using this Nike is found to have very good returns
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