aims to help Kimi Ford make a decision on her investment of Nike. We choose WACC as our method to estimate the cost of capital‚ which can be used as a discount rate to verify whether Nike is correctly valued in current market. We have mainly four steps to calculate WACC: I. Identify the type of cost of capital; II. Figure out the weights of debt and equity; III. Calculate the cost of debt and equity respectively; IV. Get WACC. After our analysis‚ we conclude that Nike is undervalued at its current
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The William Wrigley Jr. Company Case Report Ying Suan Lo Julianne Mills Nick Lim Vinson Chen Glen Hamilton Table of Contents 1.0 1.0 Introduction Identifying opportunities for corporate financial restructuring was typical for Blanka Dobrynin‚ a managing partner of the hedge fund Aurora Borealis LLC. In 2002‚ with the then debt free William Wrigley Jr. Company (Wrigley) in her sights‚ she asked her associate Susan Chandler to conduct
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hurdle-rate system. The tasks for the student are to resolve the debate‚ estimate weighted average costs of capital (WACCs) for the two business segments‚ and respond to the raider. Suggestions for complementary cases: “Nike Inc.” (case 13) gives an introductory exercise in the estimation of the cost of capital. “Coke vs. Pepsi‚ 2001” (case 14) offers the estimation of WACCs for two competitors and opportunities to reflect upon how business risk drives cost of capital. “Phon-Tech Corp.”
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1. How does Marriott use its estimate of its cost of capital? Does this make sense? Marriott has defined a clear financial strategy containing four elements. To determine the cost of capital‚ which also acted as hurdle rate for investment decision‚ cost of capital estimates were generated from each of the three business divisions; lodging‚ contract services and restaurants. Each division estimates its cost of capital based on: Debt Capacity Cost of Debt Cost of Equity All of the above are
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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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Solution to Case 23 Evaluating Project Risk It’s Better to Be Safe Than Sorry! Questions: 1. What seems to be wrong with the way the NPV of each project has been calculated? Indicate without any calculations‚ how Pete and John should go about recalculating the projects’ NPVs. The NPV of each project has been calculated by discounting the cash flows at the 8% before-tax cost of debt. This is incorrect. Since the company has debt‚ preferred stock and common
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decision and additionally‚ it will provide an action-oriented recommendation. We will first identify key issues and risk involved followed by financial support of the project. Our analysis is supported with financial measures of NPV‚ IRR‚ CAPM theory and WACC to illustrate if accepting Processing Plant Project would provide acceptable required rate of return for Harris Seafoods. Key Issues and Risk: The processing Plant proposal would allow Harris Seafoods to seize the opportunity to
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AES - Case Analysis & Write up How would you evaluate the capital budgeting method used historically by AES? What is good and bad about it? Previously‚ the economics of a given project were evaluated at an equity discount rate for the dividends from any project and as it was mostly financed through local debt‚ which was non-recourse to the parent company‚ AES use to evaluate the dividend cash flows at a standard 12%. It is a simple approach with portions of sound reasoning. One could argue that
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money. Your boss has developed the following set of questions you must answer to explain the U.S. financial system to DellaTorre. a. Why is corporate finance important to all managers? It is important to managers because it determines what limitations managers have to expand operations‚ make improvements to the corporation and its ability to raise capital. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and
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------------------------------------------------------------------------------------------2 Measure of the debt and equity based upon the market value Part ------------------------------------------------------------------------------------------3 Estimation of the WACC. I) Measure of gearing and income ratios We will take those expressions: 1. Debt to equity ratio= Long term Liabilities/Shareholders’funds 2. Debt to debt plus equity ratio= LTL/(LTL+ Shareholders’funds) 3. Long Term Borrowings/Shareholders’
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