Fin 3322 Cost of Capital Homework 1. Suppose Garageband.com has a 28% cost of equity capital and a 10% cost of debt capital. The firm’s debt-to-equity ratio is 1.5. Garageband is interested in investing in a telecomm project that will cost $1‚000‚000 and will provide $600‚000 annually for the next 4 years. Given the project is an extension of their current operations‚ what is the net present value of the this project if the corporate tax rate is 35. D/E = 1.5‚ D/V = 1.5/2.5‚ E/V = 1/2.5‚ re
Premium Weighted average cost of capital Stock Net present value
shortwood supplier. Construction for project would begin in 2007 and production would begin in 2008. The project will cost $18 million‚ with $16 million in 2007 and an additional $2 million in 2008. The $18 million investment will be depreciated using the straight-line method for six years and a zero salvage value. Although‚ the equipment is believed to be able to be sold at the end of the project for $1.8 million. The main purpose of the project is to save on operational costs by producing shortwood
Premium Net present value Weighted average cost of capital Internal rate of return
Midland Resources 1. How are Mortensen’s estimates of Midland’s costs of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? The cost of capital is the minimum acceptable rate of return for new investments in the corporation. Estimates of Midland’s cost of capital are used in many analysis within Midland‚ including asset appraisal for both capital budgeting and financial accounting‚ performance assessments‚ M&A proposals‚ and stock repurchase decisions. These
Premium Weighted average cost of capital Investment Finance
ed. (New York: McGraw Hill‚ Inc. 1968)‚ p. 71n T. O’Glove and R. Olstein‚ Quality Earnings Report‚ Financial Analysts Jounal‚ July-August 1982. P.41 Written by: Dr. B P Verma Associate Professor of Finance at UTI Institute of Capital Markets Address: UTI Institute of Capital Markets Sector- 17‚ Plot – 82 Vashi‚ Navi Mumbai – 400 705 Tel: 022 – 2789 2815 / 16 Fax: 022 – 2789 2824 E mail: bigyanverma@hotmail.com
Premium Weighted average cost of capital
Molson Coors Alcoholic Beverages Industry‚ Team 1 Leah Black Professor Shaked‚ FE449 12:30PM Section Industry Information -Make sure to add info about craft beer -Shift away from beer and towards liquor Key Industry Drivers For beer‚ wine and liquor‚ demand from wholesalers is very important. Companies in this industry must work closely with wholesalers to properly promote their product and ensure shelf space at liquor stores. An issue that arises with wholesaling is state restrictions
Premium Cash flow Revenue Discounted cash flow
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
Premium Finance Weighted average cost of capital Economics
petrochemicals. They needed to decrease their overall risk and optimize their overall performance and would only be able to by collaboration and coordination among their refining and marketing network divisions. PPC were spending billions of dollars on capital expenditures and were expecting an increase in the next year. These expenditures were allowing for the company to process heavy Alaskan crude oil more efficiently and also provided good returns. In the next five years‚ the company was going to need
Premium Weighted average cost of capital Investment Internal rate of return
the online trading platform faster and closer to 100% reliability. Lastly‚ he has proposed increasing Ameritrade’s advertising budget to a cumulative $155 million for 1998 and 1999 fiscal years. Issue The question presented is what weighted average cost of capital should be employed to value the planned investments and changes in the advertising budget. Comparable Firms In my view‚ the true competitors of Ameritrade are securities brokerage firms‚ not Internet firms‚ as Ameritrade derives the
Premium Weighted average cost of capital Bank of America Subprime mortgage crisis
10-4. You bought a stock one year ago for $50 per share and sold it today for $55 per share. It paid a $1 per share dividend today. a. What was your realized return? b. How much of the return came from dividend yield and how much came from capital gain? Compute the realized return and dividend yield on this equity investment. a. b. 10-20. Consider two local banks. Bank A has 100 loans outstanding‚ each for $1 million‚ that it expects will be repaid today. Each loan has a 5% probability of default
Premium Stock Risk Interest
1.ASSESS THE IMPACT ON THE WEIGHTED AVERAGE OF COST OF CAPITAL (WACC) ‚EPS . Chandler knew that the maximum value of the firm was achieved when the weighted average cost of capital was minimized. Thus she intended to estimate what the cost of equity and the wacc might be if wrigley pursued this capital structure change. The projected cost of debt would depend on her assessement of wrigley’s debt rating after recapitalization and on current capital market rates. WACC before recapitalization
Premium Finance Weighted average cost of capital Stock market