Case Study II : 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
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Objective The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their company’s WACC as a starting datum to estimate the discount rate to use in the net present value analysis of new projects or of termination decisions. The student will later need to know the technique for application in some case study solutions. The project also develops student skills in using elementary financial
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TANMAY GUPTA tg2311 American Chemical Corporation Cost of Capital : Collinsville Investment [pic] Where: Re = cost of equity Rd = cost of debt E = market value of the firm’s equity D = market value of the firm’s debt V = E + D Tc = corporate tax rate D/V and E/V Ratio: Since the target debt ratio of Dixon is given to be about 35%‚ we assume the target D/V ratio for Colinsville investment to be the same. Hence the E/V ratio
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WACC Example: A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also‚ the firm: - has 1‚000‚000 common shares outstanding - current price $11.25 per share - next year’s dividend expected to be $1 per share - firm estimates dividends will
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Biography of Allan Pinkerton Mona London CJS/250 Introduction Security 05/26/2013 In this paper‚ we will examine the life of Allan Pinkerton. We will examine how his history with law enforcement influenced the major events that involve the Pinkerton Detective Agency during his life. The last topic of discussion will cover the impact of the agencies innovations on law enforcement and the private security industry. Allan Pinkerton was born August 25‚ 1819 in Glasgow‚ Scotland. He began working
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Approach is to analyze financial maneuvers separately and then add their value to that of the business. | APV always works when WACC does‚ and sometimes when WACC doesn’t‚ because it requires fewer restrictive assumptions | Some limitations amount to technicalities‚ which are much more interesting to academics than to managers. | | Less Prone to serious errors than WACC. | Income from stocks- as opposed to bonds- may be taxed differently when the investor files a personal tax return : this usually
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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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Biography of Allan Pinkerton CJS 250 Axia College UOP Allan Pinkerton is without a doubt one of the most famous figures in the Detective history. In his long and varied career he was called a traitor and a patriot‚ an outlaw and a police officer‚ a thug and an idealist‚ a left-leaning political activist fighting for the plight of the workers and a hired goon for bosses‚ a defender of liberty and a tramper of rights‚ an immigrant and a drunkard‚ a rogue‚ an adventurer and a barrel maker
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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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Biography of Allan Pinkerton CJS 250 Laureen Wendt University of Phoenix Allan Pinkerton (1819-1884) was born in Glasgow‚ Scotland. Pinkerton was a cooper and barrel maker by trade and in his early years he became involved and sought political and social reform. Pinkerton left Scotland and moved to Chicago in 1842 and here he obtained a position as a deputy sheriff of Cook County. Over time Pinkerton realized he had a knack for catching criminals. He also believed
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