National Cranberry Cooperative 2. The resource with least capacity determines the maximum long-term achievable throughput rate. Because wet and dry berries follow different routes at RP#1 there will be a maximum achievable throughput for each. The capacity of the dryers is the bottleneck for the wet berries. The maximum throughput for wet berries is 600 bbls/hr. For dry berries the separation process is the bottleneck. The maximum throughput for dry berries is 1200 bbls/hr. The percentage
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NIKE‚ INC.: COST OF CAPITAL Professor Meiberger By Sebastian Gomez Team 5 Cohort: Front The portfolio manager for NorthPoint Group‚ Kimi Ford was deciding if she should pitch in and draw Nike within NorthPoint Large-Cap Fund. Nike‚ which did not have the strongest fiscal year results in 2001‚ was implementing new strategies to heighten its revenue and income. Kimi Ford‚ after having carefully read reports by analyst‚ and their input within this publicly traded company decided to emphasize
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expanding Apix activities to include food packaging. To support Apix leadership‚ we will explain capital structure and determine weighted average cost of capital (WACC) from the assumption provided by Mary Francis. Furthermore‚ we will show how WACC and Capital Structure can be leveraged to find out the viability of the capital project. Additionally‚ we will explain marginal cost of capital. To close‚ we will make a recommendation on the best approach to apply to project evaluation between capital structure
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determined that the project’s unlevered cash flows will be $2.6 million per year in perpetuity. Mr. Edison has devised two possibilities for raising the initial investment: Issuing 10-year bonds or issuing common stock. NEC’s pretax cost of debt is 7.2 percent‚ and its cost of equity is 11.4 percent. The company’s target debt-to-value ratio is 80 percent. The project has the same risk as NEC’s existing businesses‚ and it will support the same amount of debt. NEC is in the 34 percent tax bracket. Required:
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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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and return on equity. Firstly‚ we calculate the cost of capital in order to determine the capital structure that maximizes the value of the firm. We then incorporate other qualitative considerations including financial flexibility‚ risk and consistency with DuPont’s goals. Lastly‚ we compare each alternative’s effect on EPS‚ its changes in company ratings and the deviations from industry standards. The weighted average cost of capital obtained for the 40% debt alternative was 8.06%
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flows 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
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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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Chapter 14 Cost of Capital Multiple Choice Questions 1. A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith‚ Inc. What is the return that these individuals require on this investment called? A. dividend yield B. cost of equity C. capital gains yield D. cost of capital E. income return 2. Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the: A. compound rate. B. current yield. C. cost of debt
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flows 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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