Joanna began her calculation of Nike’s WACC by finding the necessary weights of debt and equity to be used. To begin‚ Joanna found Nike’s debt by combining the book values of current long-term debt‚ notes payable‚ and long-term debt‚ which were all found on Nike’s balance sheet. The values were $5.4 million‚ $855.3 million‚ and $435.9 million respectively. This calculation gave Nike a total debt of $1‚296.9 million. To find Nike’s equity‚ Joanna used the book value of total shareholders’ equity
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|Case 9 | |Performance Boating Products‚ Inc. | Performance Boating Products‚ Inc I. Situation Analysis • Performance Boating Products‚ Inc (PBP) manufactures attachments for boat hulls and motors that aid watercraft in reducing drag and maintaining ‘plane’. • PBP attachments can be integrated as part of new
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FINS3625 APPLIED CORPORATE FINANCE Case Study Written Report Week 8 Valuation: Laura Martin Name Student Number % Contributio n 20 20 20 20 20 Signature Karen Chan Yifeng Chen (Nino) Tony Richardson Weitao Wu (Tony) Wendy (Wenyu) Yan z3242429 z3283995 z3253113 z3284666 z3241580 1 Multiples versus DCF analysis Multiples analysis is simple to understand and apply. The inputs for the multiple are publicly available‚ though are vulnerable to accounting manipulation. Also
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Original value of the firm: V= D + S = 0 + ($15)(200‚000) = $3‚000‚000 Original cost of capital: WACC = wd(1-T)rd + wsrs = 0 + (1.0)(10%) = 10% With financial leverage (wd = 30%): WACC = wd(1-T)rd + wsrs = (0.3)(7%)(1-0.40) + (0.70)(11%) = 8.96% Since the growth is zero‚ the value of the company is: V= FCF/WACC = [EBIT)(1-T)]/WACC = [($500‚000)(1-0.4)]/(0.0896) = $3‚348‚214 Therefore‚ increasing the financial leverage by adding $900‚000
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2) How does Debt add value at CPK? (values in thousands) - Do Nothing: ROE‚ WACC ROE: NI/BVofE (20299/225888)= 8.99% ROE: NI/MVofE (20299/643773)= 3.15% WACC: 9.52% COE: .85(10.3-5.1)+5.1=9.52% - Add $45‚177‚600 in Debt (20% Debt/Total Book Capital): New ROE‚ Present Value of Tax Shields‚ # shares outstanding after repurchase‚ Expected Post-Issuance Stock Price‚ BetaLev‚ REquity‚ and new WACC. (Note: Use Rf of 10 yr. UST Note‚ and an expected Rm=10.3%. Also‚ assume
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Advantages (government websites) 2 - Cost of Equity‚ Appropriate Discount Rate (WACC) Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta) 2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate Discount Rate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity) 2. WACC (important – why is it important for the company‚ Tesca‚ to know this?) 3. Each
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following issues must be considered: Valuation of cash flows in the relevant period Estimating terminal value A. Procedure 1. The cash flows (without synergy) were taken as provided for 5 years along with adjustment for Net working capital changes. 2. WACC was calculated for various D/V ratios 3. Terminal Value of the firm was determined using P/E Multiple of 19.1 4. Valuation done for the cash flows and terminal value at a discount rate corresponding to industry average D/V Ratio 5. APV determined using
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Theory of Finance Exam Review Taught by: Tana Chasakara tchasaka@uoguelph.ca http://guelph.soscampus.com/ Feedback from Last session • I move to fast through the material • I will slow down this time and go over 2 hours if necessary • I should correspond with Prof Bower more • Met with Professor Bower and created my slides based on the information she provided • Some one on one time would be really helpful • I will be in the library tomorrow from 12.30-3.30 if
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Assessment: Lite orange juice Project 1. Define the term “incremental cash flow”. Since the project will be financed in part by debt‚ should the cash flow analysis include the interest expense? Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company ’s cash flow will increase with the acceptance of the project. Cash flow analysis should not include the interest expense. We
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Return Vs. Required Return 21 Portfolio Planning 21 Dividend growth model 24 Corporate Valuation Model 24 Constant & non-constant growth of dividend 27 Actual prices Vs. Expected Prices 27 Weighted average cost of capital (WACC) 28 Trend of financial statements in last five years 30 Acknowledgement First of all we all are thankful to one and only the Almighty Allah for always guiding us in the thick and thin and giving us strengths and courage to complete this
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