Question 1 Call options on XYZ Corporation’s common stock trade in the market. Which of the following statements is most correct‚ holding other things constant? Answer Correct Answer: The price of these call options is likely to rise if XYZ’s stock price rises. Question 2 Other things held constant‚ the value of an option depends on the stock’s price‚ the risk-free rate‚ and the Correct Answer: All of the above. Question 3 Which
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However both the companies are performing better than the industry average. IBM does also take lesser number of days to convert cash on hand compared to Accenture and industry average. But‚ Accenture is taking more days than industry average on converting into cash. For the company’s credit rating we only consider the quantitative factors as it is difficult to get the in depth information on the qualitative factors. We consider the average of three years to get the credits ratings of the company. According
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Part A After-TAX Cost Debt O’Grandy Apparel Company can calculate the after tax debt cost using YTM (CP + (FV-Nd /n) / FV +Nd /2) *2. Cp is (0.12/2) * 1000= 60 Semi-annually Fv is 1000 Nd is 995 – (0.025* 1000) = 970 N is 20*2 because it is semi-annually then you have to use Kdt= Kd+ (i-T) .The tax bracket is 40 percent. Now we can have the after tax debt when it is equal or smaller than $700000 Kd ( 1-T) = 0.1249 (1-0.4)= 0.07494. If it is more than $700000 it will be KD (1-t) = 0.18(1-0.4)
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Discounting to reflect stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding using the treasury stock method Modeling the weighted average cost of capital (WACC) Sensitivity analysis using data tables Modeling synergies ***************************** SAMPLE PAGES FROM TUTORIAL GUIDE ***************************** DCF in theory and in practice DCF in theory • The DCF valuation approach
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at the 8% before-tax cost of debt. This is incorrect. Since the company has debt‚ preferred stock and common stock in its capital structure the weighted average cost of capital must be calculated and used to discount the projects’ cash flows. The weight of each component of the target capital structure (based on market values of outstanding securities) should be calculated and used along with their respective component costs to calculate the weighted average cost of capital. Next‚ the Present
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Pleasure Craft INC.’s experience with small engine manufacturing but unfamiliar sales market‚ which is producing front end loaders. Front end loaders would be sold to construction companies‚ farmers‚ ranchers‚ the military and to municipal governments. Pleasure Craft INC. would sell the front end loaders to retailers to serve the construction‚ farming and ranching markets. But sell directly to the military and municipal governments. The sales of the front end loaders would require a new sales staff‚ entirely
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the current costs of its three basic sources of capital—long-term debt‚ preferred stock‚ and common stock equity—for various ranges of new financing. Source of Capital Range of New Financing After Tax Cost Long-term debt $0 to 320‚000 6% $320‚000 and above 8% Preferred stock $0 and above 17% Common stock equity $0 to $200‚000 20% $200‚000 and above 24% The company’s capital structure weights used in calculating its weighted average cost of capital are shown in
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competitors 5 1.2.1. Boral Limited 5 1.2.2. Fletcher Building Limited 5 1.2.3. Brickwork Limited 5 2.Capital structure 6 2.1. Leverage 6 2.1.1. Current ABC’s leverage 6 2.1.2. Recent history of ABC’s leverage 6 2.2. ABC’s capital expenditures and its financing 9 2.3. Comparison of ABC’s capital structure with similar companies 10 2.4. Characteristics of the company influencing the leverage policy 11 2.4.1. Tax advantage
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the CFO. The sport fishing boat industry in 1999 was booming and Davis Boatworks had more orders than their current manufacturing facility could handle. An expansion of manufacturing facility would cost then $3 million. They also needed an infusion of $2 million to improve their net working capital. In order to achieve this Carson Davis was contemplating selling part of his stake in the company to an investor. Most of Carson Davis’s personal wealth was tied up in Davis Boatworks as equity. Buddy
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its cost of capital? Does this make sense? c. What is the weighted average cost of capital for Marriott Corporation? • What risk-free rate and risk premium did you use to calculate the cost of equity? • How did you measure Marriott’s cost of debt? 1. Are the four components of Marriott ’s financial strategy consistent with its growth objective? 2. How does Marriott use its estimate of the cost of capital? Does this make sense? 3. Using the CAPM‚ estimate the weighted average cost
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