| - | 0.90 | 0.70 | β relevered (βl) | 1.37 | 1.09 | 1.27 | 1.29 | Cost of equity (Re) | 18.90% | 17.05% | 18.15% | 18.30% | Cost of debt (Rd) | 9.03% | 9.39% | 9.16% | 9.43% | Effective tax rate (t) | 43.68% | 43.68% | 43.68% | 43.68% | WACC | 8.68% | 12.35% | 12.69% | 10.51% | Overall‚ Contract Services division has the highest weighted average cost of capital and Lodging division has the lowest. Since different lines of business are different in nature‚ this estimation is reasonable
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3210AFE Advanced Corporate Finance Cost and Feasibility study for New Earth Mining‚ Inc. Student Name: Zekui Wang Student Number: S293105 Executive summary: Recently there has been wide speculation and interest placed on the iron ore project in the Kalahari in South Africa‚ and it is deemed as being a very attractive investment for New Earth Mining‚ Inc. (NEM). First of all‚ under normal condition‚ this project could contribute around $73 million to the shareholder. The return
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Nike‚ Inc.: Cost of Capital EXECUTIVE SUMMARY Kimi Ford‚ a portfolio manager of North Point Group a large mutual fund management firm‚ is looking into the viability of investing in the stocks of Nike for the fund that she manages. Ford should base her decision on data on the company which were disclosed in the 2001 fiscal reports. While Nike management addressed several issues that are causing the decrease in market sales and prices of stocks‚ management presented its plans to improve and
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the company should use Internal Rate of Return Calculation. 1. Looking at the cash flows doesn’t really say much. The assumption is that the firm is in the business to make profit. Profit is equal return on investment cost of borrowing. If the WACC is 10% or higher‚ firm should make more than 10% as return on investment. Looking at the cash flows only gives an idea of how much excess of cash flow over initial investment is made. Implementing the time value of money‚ larger cash stream in first
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acquisition‚ the expansion option‚ and in combination. Sterling must ultimately decide whether to pursue the acquisition either with or without the option‚ retract its offer‚ or renegotiate the terms. Discussion Weighted Average Cost of Capital (WACC) Calculation Cost of Equity (COE) Cost of Debt (COD) The
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defined as “long-term debt plus book equity.” The correct text should state “long-term debt plus market equity.” Answer the following questions: a. Does Pioneer estimate its overall corporate weighted-average cost of capital correctly? I think they´re WACC is correctly estimated. They use 50% debt and 50% equity‚ which I think is very risky. I would prefer to use a 40% debt and a 60% equity in that way the company would be less riskier. Although I’m not an expert in this type of companies. b. Should
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(derived from the sales of electronics division‚ termination of Volvo contract and disposable properties) to invest in different projects. Cost of capital (WACC) is main determinant for future cash flows in any investment in the future. WACC is used to make decisions which involve raising and investing new capital in forms of debt or equity. WACC determines the hurdle rate and makes easier to evaluate future projects whether profitable or not. 2. Using the data provided in the case‚ estimate Lex’s
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the WACC (Weighted Average Cost of Capital) of Bickely with its 30/70 capital structure? Bickley’s average borrowing rate with this capital structure is 7.5%. WACC = Proportion of debt X after tax cost of debt + Proportion of equity X cost of equity Using CAPM Cost of equity = Rf + (Rm-Rf) beta = 3.5% + 7.5% X 1.3 = 13.25% WACC = 0.3 X 7.5% X (1-0.4) + 0.7 X 13.25% = 10.625% What will be Bickley’s WACC with its 15/85 capital structure? Cost of equity = 3.5% + 7.5% X 1.14 = 12.05% WACC = 0
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in its industry. After starting in 1971‚ Devon listed as a public entity in 1988 on the American Stock Exchange under its ticker symbol DVN‚ Devon is now in its fifth decade and is competing against companies like Chesapeake Energy Corporation and Encana Corporation. “Devon is a results-oriented oil and gas company that builds value for shareholders through its employees by creating a culture of health‚ safety and environmental stewardship in an atmosphere of optimism‚ teamwork‚ creativity and resourcefulness
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Chapter 8 The Cost of Capital 236 CHAPTER 8—THE COST OF CAPITAL TRUE/FALSE 1. Capital refers to items on the right-hand side of a firm’s balance sheet. 2. The component costs of capital are market-determined variables in as much as they are based on investors’ required returns. 3. The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt. 4. The cost of issuing preferred stock by a corporation must be adjusted to an after-tax
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