What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 1.1 The definition of WACC Weighted average cost of capital(WACC)‚ is a weighted-computational method of analyzing the cost of capital based on the whole capital structure of a firm. The result of WACC is the rate a firm use to monitor the application of the current assets because it represents the return the firm MUST get. For example this rate could
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Weighted Average Cost of Capital Introduction and objectives This paper aims at describing a way to compute the Weighted Average Cost of Capital (WACC). This method is often used by company management to determine the economic feasibility of different projects and thus to compute the NPV of a specific project by discounting cash-flows. The WACC determines the return that the company should generate to satisfy its debt-holders. For the company‚ it consists in a tool for projects decision-making
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X. Weighted average cost of capital (WACC) The valuation of Abercrombie & Fitch Co. is based discounting future cash flows and economic profit‚ for that the weighted average cost of capital is needed. The WACC is the opportunity cost when investing in Abercrombie & Fitch Co. opposed to other investments with a similar risk. Investors want their return to excess the WACC before it can be considered a good investment; since people in general are risk averse‚ they want compensation for taking on risk
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The Boeing Company is an international aerospace and defense corporation originally founded by William E. Boeing in Seattle‚ Washington. The international corporate headquarters are now located in Chicago‚ Illinois (Boeing‚ 2009). Boeing was initially incorporated as Pacific Aero Products Company in 1916 (Boeing‚ 2009). Since 1916‚ Pacific Aero Products Company has transformed into Boeing and expanded into the largest global aircraft manufacturer by revenue‚ orders and deliveries‚ and the second
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= 10/80 = 0.125 Common: E/V = 50/80 = 0.625 = [0.250 6% (1 – 0.35)] + [0.125 8%] + [0.625 12.0%] = 9.475% 6. Executive Fruit should use the WACC of Geothermal‚ not its own WACC‚ when evaluating an investment in geothermal power production. The risk of the project determines the discount rate‚ and in this case‚ Geothermal’s WACC is more reflective of the risk of the project in question. The proper discount rate‚ therefore‚ is not 12.3%. It is more likely to be 11.4%. 7. The flotation
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Boeing Corporation The Challenge of Being Ethical and Competitive “Because we dared to dream‚ dared to work hard‚ we have turned dreams into realities‚ to leave some huge footprints on every aerospace frontier. Now it is time to create some new footprints!” ~ Phil Condit‚ CEO‚ 1996 Boeing Chief Executive Phil Condit stared blankly at the road early Saturday evening as he drove to Boeing Headquarters. He drummed his fingers on the steering wheel‚ contemplating the crucial decision at hand
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Boeing 777 QUESTION 1: The WACC that Boeing should use to discount the cash flows for the Boeing 777 investment is the WACC of the Boeing’s commercial division. Step 1: We needed to calculate the Beta of the commercial division of Boeing. We know that Beta of Boeing Corp. is the weighted average of the defense division Beta and the commercial division Beta. We started by calculating the unlevered Beta of Boeing Corp. We did that by unlevering the long-term Boeing Betas i.e.‚ more
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Analysis of Boeing Supply Chain Individual assignment Word Count: 1613 March 2013 The Boeing Company (Boeing)‚ incorporated on July 19‚ 1916‚ is an aerospace company and the largest manufactor of commercial and military aircrafts in the world. The Company operates in five segments: Commercial Airplanes‚ Boeing Military Aircraft (BMA)‚ Network & Space Systems (N&SS)‚ Global Services & Support (GS&S) and Boeing Capital Corporation (BCC)
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Jack in the Box decreased in re-cent years. The ratio is below one and shows a conservative attitude in operation and may slow down the growth of the company. The Calculation of WACC Table 5 Equity Debt Pref. E Weight 75.58% 24.42% 0.00% Cost 10.96% 1.84% 0.00% W x C 8.28% 0.45% 0.00% WACC 8.73% WACC=Weight of Equity * Cost of Equity+ Weight of Debt * Cost of Debt + Weight of Pre-ferred Equity* Cost of Pref. E Table 6 Cost of Debt (After-tax) 1
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Johnson‚ Suzanne Holt Case Study: Boeing 777 Copyright 2010. Gatton Student Research Publication. Volume 2‚ Number 2.Gatton College of Business & Economics‚ University of Kentucky FIN 445 October 2010 Gatton Student Research Publication | 1 The purpose of this case study is to determine if Boeing should accept or reject the project of producing their new line of commercial aircraft‚ the Boeing 777. The aircraft will complete a family of Boeing airplanes that service a broad range
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