exhibited in the graph (Figure 1‚ page 224) prepared by Vice President of the Telecom Segment‚ Rick Phillips‚ the firm currently utilizes a constant hurdle rate attained through an estimate of Teletech’s corporate Weighted Average Cost of Capital (WACC). The WACC for Teletech Corp (as a whole) is calculated at 9.30%‚ which is then applied to all investment and performance-measurement analyses of the firm. When looking strictly at this‚ the Telecommunications Services is under performing with a return
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a) Explain and distinguish between the terms: Financial gearing Optimal capital structure Financial gearing: Financial gearing is a percentage of debt capital in the company’s capital structure. If company has high gearing that means a company borrow a lot debt capital. (Main text book). Optimal capital structure: The optimal capital structure for a company is one which offers a balance between the ideal debt-to-equity range and minimizes the firm’s cost of capital. b) Explain why the
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additional adjustments or assumptions made to justify my estimates. SECTION 1: Main models and methods applied and corresponding assumptions 1. Constant Debt-ratio Weighted Average Cost of Capital (WACC): Assumptions: WACC: as constant debt ratio is the underlying assumption to derive the WACC model‚ constant debt ratio should be reasonably assumed to be applied by Midland and its three divisions. According to the case‚ Midland optimizes its debt levels by regularly reevaluations against its
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Q1: The first financial strategy “Manage rather than own hotel assets” is consistent with growth objectives. The company sold out the hotel assets while keeping a long-term management contract. We calculated the Return on Assets (ROA) from 1978 to 1987‚ it increased a little in 1979 and kept decreasing to 1987(Exhibit 1). By managing rather than owning the hotel assets‚ Marriott is able to increase its ROA thereby increasing potential profitability and its financial position in the market. Marriott
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1. Introduction Wal-Mart Wal-Mart was founded by Sam Walton on 1962 and it is the largest retailer in the world. The company has three major operations which are Wal-Mart Stores U.S.‚ Sam ’s Club‚ and Wal-Mart International. On 2007‚ Wal-Mart used this new slogan” Save Money Live Better”. However‚ there are some critics about their employee life. Wal-Mart exploits their employee’s salary for setting low price to customer. They resisted their worker to build union organization because they tried
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The Wm. Wrigley Jr. Company: capital structure‚ VALUATION and cost of capital Introduction: Blanka Doborynin a managing partner of AURORA BOREALIS LLC tries to initiate a research for a potential investment in Wrigleys. They are trying to recapitalize the firm. Wrigley’s which is 100% equity financed has a market value of $13‚103‚000‚000 the question begins if it is totally equity financed is it running at its efficient level? Or Is it better to recapitalize the structure and thereby bring
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inflated returns. 2. Calculate Midland’s firm-wide WACC. Make sure you explain clearly your method and your choice of inputs. In particular‚ is Midland’s choice of market risk premium appropriate‚ and if not‚ what recommendations would you make and why? Based on our calculations‚ the Midland’s firm-wide WACC we have got is 8.48%.First‚ we choose the rate of 30-year U.S. Treasury bonds in 2007 (4.98%) as the risk free rate we use in the 2007 WACC calculations. The reason is that majority of large
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Constantine Brocoum Courtney Delia Stephanie Doherty David Dubois Radu Oprea December 19th‚ 2009 Contents Objectives 1 Management Summary 1 Financial Health 1 Financial Forecast for 2002 and 2003 3 Key Driver Assumptions 5 Star River WACC 5 Free Cash Flows of the Packaging Machine Investment 7 Appendices 7 i. Objectives This report seeks to answer the following five questions about Star River Electronics Ltd.: 1. Assess the current financial health and recent financial
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Applied Corporate Finance Case: American Chemical Corporation The primary issue we are exploring here is the planned sale of the Collinsville Plant by American Chemical Corporation to Dixon at a negotiated price of $ 12 Million (as of end of year ‘79) Q1: Estimate the appropriate cost of capital for the investment To calculate the appropriate cost of capital we assessed Dixon’s purchase investment structure. The steps were as follows: 1. We first calculated the cost of debt of the investment using
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105=6.95%/2*100*[11/(1+k)^12]/k+100/(1+k)^12 k=2.97% Thus‚ YTM=2.97%*2=5.94% c) Coupon rate= 5.94% Cost of equity ke= 0.072 Debt= 12‚095+1848 =13‚943 Equity= 24‚508 D/E=0.5689 D/V=0.3626‚ S/V=0.6374 Knewd = 0.0594(10.25)/0.995= 0.04477 WACC=0.072*0.6374+0.04477*0.3626=0.062 Question 2 –Mergers & Acquisitions (10 marks) Question 2 – Mergers & Acquisitions a) Equity Value of XYZ: 1*2.5 = $2.5 million Premium = (32.5)/2.5 = 20% or 32.5=0.5M ABC Co.’s New Share Price: (20 + 2
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