closer‚ while the working capital investment becomes lower with a lower customer credit risk. Financial forecast: The business plan has been developed looking at an exhaustive market analysis. Forecast data are reliable; they refer to the first five years. The target is to open 80 franchising shops within five years. Indeed‚ is that the optimal minimum number of shops in order to achieve the optimal minimal production output. The questions: 1) Which is the fair cost of capital for the company? 2) Which
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following report details USEC’s opportunity to embark on a massive capital-expenditure project known as the American Centrifuge Project (ACP). Currently‚ USEC is utilizing gas-diffusion technology to enrich uranium. 100 million dollars have already been invested with the Department of Energy (DOE) in the development of the ACP technology‚ and a balance of $1.6 billion would be required to execute the project. While the investment cost is significant‚ the ACP would provide distinct advantages for USEC
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rate has to be developed and the relevant valuation attribute in the year T + 1 should be constructed. This error is experienced in all three papers. The inconsistent discount rate error arises due to inconsistency between cost of equity capital and weighted average cost of capital. This error is experienced by Francis and Penman. The missing cash flow error exists due to an inconsistent way of calculating the valuation attributes. Courteau and Francis suffer this error. Therefore this article argues
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internal rate of return related to the investment was not high enough to justify a purchase of the company. Peabody’s cost of debt was .038. This was calculated by assuming a 40% tax rate and .095 rate on debt (Exhibit 3). There was a .095 interest rate on notes payable due June 30‚ 1998; therefore‚ we assumed the rate of debt at the time of purchase would have been similar. Also‚ Peabody’s cost of equity was .1397. This was calculated by using a risk-free rate of .055‚ which was the rate of the 90-day T-bill
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Instructor:________________________ 1. In 2008‚ Miles‚ Ana and Cindy‚ who are partners in the MAC Company‚ had average capital balances of $114‚000‚ $98‚000 and $128‚000‚ respectively. The partners share profits and losses by allowing a 12% return on average capital‚ with any remaining income or loss divided in a ratio of 5:3:2. If the company’s income for the current year was $147‚600‚ Cindy’s capital account would increase by: a. $55‚568 b. $44‚880 c. $36‚720 d. $29‚520 2. The total number of shares of
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production cost. Competition from peer companies has significant effect on its operation‚ because Hill County is price taker in the market‚ that is‚ increase in prices is not one of the choices it can implement. Also‚ due to the fact that its profitability relies heavily on cost management‚ an intense competition can worsen the situation of Hill County in the future. Hence‚ the company needs to be very efficient in order to compete with other low-cost production firms. In addition‚ cost management
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earnings. The calculation for economic earnings can be measured as follow: Economic Earnings = NOPAT – (WACC X Average Invested Capital) In determining economic earnings‚ all companies within the Group had to apply a 10% cost of capital as per SURIA’s requirements. From Appendix G‚ it shows the companies’ NOPAT‚ Average Invested Capital and Weighted Average Cost of Capital (WACC) and from that information‚ the performance of each company can be measured as follow: The
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Overview The footwear industry is a mature‚ very competitive with low growth and stable profit margins. Active Gear‚ Inc. is a privately held footwear company which is a profitable firm in the industry with $470.3 million revenue in 2006. West Coast Fashions‚ Inc is a large business of men’s and women’s apparel decided to dispose of one of their divisions: Mercury Athletic with $431.1 million revenue in 2006. AGI is very profitable but it is smaller than other competitors‚ which is becoming a competitive
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SHEETER REPLACEMENT DECISION Teaching Note Synopsis and Objectives The owner of a midsize folding carton printer is considering the replacement of an old machine for cutting sheets of paper from rolls (a sheeter) with a new one. This standard capital budgeting analysis‚ which requires identification of both the relevant cash flows and the relevant discount rate‚ is enhanced by an alternative that is not explicitly stated but can be readily identified and analyzed—to outsource all sheeting and
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Case 3: Globalizing the Cost of Capital and Capital Budgeting at AES Question 1 Explain and comment on the capital budgeting method used historically by AES. Is there a need for change? Explain. Question 2 If Venerus implements the suggested methodology‚ what will be the adjusted discount rate for the Red Oak project (USA) and the Lal Plr project (Pakistan)? Question 3 Calculate the effect that a revision of its cost of capital will have on the Lal Plr project’s NPV. Comment on the
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