Case Study –Nike‚ Inc.: Cost of Capital FIN202a-Spring 2011 1. Please define Weighted Average Cost of Capital (WACC). Write down the WACC formula‚ and discuss its components. WACC (Weighted Average Cost of Capital) is a market weighted average‚ at target leverage‚ of the cost of after tax debt and equity. It is a critical input for evaluating investment decision‚ and typically the discount rate for NPV calculation. And it serves as the benchmark for operating performance‚ relative to
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acquisition of Pinkerton in an effort to determine whether bids of $85 million to $100 million is value enhancing for CPP’s shareholders. Additionally‚ Wathen must choose between two financing options: (1) raising $100 Million via a $75 million debt structure at 11.5% interest rate together with a $25 million equity investment for a 45% stake in the combined company and (2) a $100 million debt facility at 13.5% interest rate. General Assumption. We assumed that Wackenhut is comparable to Pinkerton‚ and
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Pfizer Inc.’S Cost of Capital and Capital structure - Xiaoyue Shi The costs of capital and capital structures for Pfizer Inc. and its two competitors Merck & Co. Inc. and Johnson & Johnson in the pharmaceutical industry are analyzed in this memo. When calculating the cost of common stock for the three companies‚ three different approaches including Capital Asset Pricing Model (CAPM)‚ Discounted Cash Flow (DCF) and the bond yield plus risk premium are applied (Appendix A). For CAPM approach
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1. Which of the following would increase the likelihood that a company would increase its debt ratio in its capital structure? a. An increase in costs incurred when filing for bankruptcy. b. An increase in the corporate tax rate. c. An increase in the personal tax rate. d. None of the statements above is correct. ANSWER: B An increase in the corporate tax rate would mean that firms would get larger tax breaks for interest payments. Therefore‚ firms have an incentive to increase interest payments
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to fund overseas growth‚ invest in value-creating project‚ achieve an optimal capital strategy and repurchase undervalued shares. To accomplish all these goals the company has asked Janet Mortensen‚ Vice President of finance for Midland energy resources‚ to calculate the weighted average cost of capital (WACC) for the company as a whole. Formula: WACC = rd (D/V) (1-t) + re (E/V) Where‚ rd = cost of debt; re= cost of equity; D = Market value of debt; E= Market value of equity; V= Market Value
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Work eBookeBook Problem 13-6A Specific Identification‚ FIFO‚ LIFO‚ and Weighted-Average Swing Company’s beginning inventory and purchases during the fiscal year ended September 30‚ 20-2‚ were as follows: Use the following information for the specific identification method. There are 1‚300 units of inventory on hand on September 30‚ 20-2. Of these 1‚300 units: Required: Calculate the total amount to be assigned to cost of goods sold for the fiscal year ended September 30‚ 20-2‚ and ending inventory
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STATISTICS AND CALCULATION: 1. Summary statistics: Accroding to the collected data: There is one non- callable bond issues of FedEx Corporation (FDX) in the ten-year maturity which is FDX.GD‚ use its yield of maturity as the pre-tax cost of debt. * Market value of
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Allan Pinkerton was born 1n 1819 in Glasgow Scotland. Pinkerton immigrated to the US in 1842 and settled in Chicago Ill. He opened a barrel making shop just outside of Chicago. Pinkerton was an avid fan of Abraham Lincoln. Like Lincoln he was an abolitionist. He used his small shop as part of an underground railroad for assisting slaves who were moving north for freedom. His first adventure in detective work was a mere coincidence. While Pinkerton was gathering wood for his shop he discovered counterfeiters
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Pinkerton (A) Assignment The assignment is twofold. First‚ to advise Tom Wathen as to whether he should buy Pinkerton for the asking price of $100 million. Second‚ regardless of your answer to #1‚ assuming that Wathen does buy Pinkerton‚ should he finance the purchase with Financing Alternative #1 (debt and equity financing from an investment firm) or Alternative #2 (all debt financing from a bank). The financing alternatives are discussed on page 4 of the case. You should do the discounted
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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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