the chapter and submit answers to your instructor. Deadline: ( )‚ Business - Finance "Corporate Valuation and Financial Planning" Please respond to the following: Suppose a company’s return on invested capital is less than its weighted average cost of capital (WACC). Speculate on what would happen to the value of operations if the sales growth rate increases. Provide examples of similar instances to support your response. * From the scenario‚ cite your forecasting conclusions that support
Premium Weighted average cost of capital Corporate governance Risk
which of the two options is better? Estimating the discount rate 4. What is the appropriate beta for the Collinsville project? 5. Estimate the cost of equity capital appropriate for the evaluation of the incremental cash flows associated with the Collinsville investment. 6. Determine the after-tax cost of debt for the project. 7. Estimate the weighted average cost of capital (WACC) appropriate for the valuation of the Collinsville investment. Project Valuation 8. Using the discount rate determined above
Premium Net present value Weighted average cost of capital Cash flow
Marriott Corporation: The Cost of Capital (Abridged) 1. How does Marriott use its estimate of cost of capital? Does this make sense? Marriot use cost of capital as the hurdle rate (minimum rate of return required to accept the project) to discount future cash flows for the investment projects of the three lines of business (Lodging‚ Contract Services and Restaurants). They use this rate to calculate NPV and net present value over cost to decide for the profit rate. Since cost of the project stays
Premium Weighted average cost of capital Investment
CASE 14 NIKE‚ INC.: COST OF CAPITAL Cost of capital denotes the opportunity cost of using capital for a particular investment as oppose to the alternative investment which has similar systematic risk. It is extremely important since it is used in evaluating whether a project is feasible or not in the net present value (NPV) analysis‚ or in assessing the value of an asset. WACC (weighted average cost of capital) is the proportional average of each category of capital inside a firm (common
Premium Weighted average cost of capital Investment Stock market
What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 1.1 The definition of WACC Weighted average cost of capital(WACC)‚ is a weighted-computational method of analyzing the cost of capital based on the whole capital structure of a firm. The result of WACC is the rate a firm use to monitor the application of the current assets because it represents the return the firm MUST get. For example this rate could
Premium Weighted average cost of capital
| | [pic] Decreasing the capital requirements (Capital/Sales) | | [pic] Decreasing the weighted average cost of capital | | [pic] Increasing the expected rate of return on invested capital |
Premium Free cash flow Internal rate of return Net present value
millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4‚000‚ (b) that improvements in the credit department could reduce receivables by $2‚000‚ and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2‚000. Furthermore‚ she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made‚ by how many days would the cash conversion cycle
Premium Stock Accounts receivable Weighted average cost of capital
does NOT always increase a company’s market value? (Points : 5) Increasing the expected growth rate of sales Increasing the expected operating profitability (NOPAT/Sales) Decreasing the capital requirements (Capital/Sales) Decreasing the weighted average cost of capital Increasing the expected rate of return on invested capital | 2. (TCO F) Which of the following statements is correct? (Points : 5) For a project with normal cash flows‚ any change in the WACC will change both the NPV and the IRR
Premium Internal rate of return Free cash flow Cash flow
-1 Spring 2013 Cost of Capital Q1: Percy Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company’s outstanding bonds is 9% and the company tax rate is 40%. Percy’s CFO has calculated the company’s WACC as 9.96%. What is the company’s cost of common equity? Q2: Tunney Industries issued preferred stock at a price of $47.50 a share. The issue is expected to pay a constant annual dividend of $3.80 a share. What is the company’s cost of preferred stock
Premium Dividend yield Weighted average cost of capital Stock
by her promotion and the reliance on her calculations. However‚ her cost of equity numbers were used as a starting point and manipulated rather than used as presented. Examining the calculation of the firms weighted average cost of capital and betas as well as comparing with others in the same type of industries indicates that assumptions should be changed for the project being analyzed. Consideration of debt‚ equity‚ and costs must be given for the specific project while being mindful of company
Premium Weighted average cost of capital