bonds yielding 8%. The remaining long term debt will be at 7%. The marginal tax rate will remain the same. What will be Bickley’s new Beta with this new 15/85 capital structure? What is the WACC (Weighted Average Cost of Capital) of Bickely with its 30/70 capital structure? Bickley’s average borrowing rate with this capital structure is 7.5%. What will be Bickley’s WACC with its 15/85 capital structure? CHAPTER 15 1. Unlevered Beta of Bickely Bu = 1.3 / [1 + (1 - .40)(
Premium Weighted average cost of capital
project will solely be the present value of cash flow subtracts the cost of the project. In numerical term‚ the asking price of HK$ 1 billion dollar has a present value of HK$ 1.54 with a cost of HK$ 1.6 billion. This leads to a net present value of HK$ (60 million) dollar. This makes the project very unattractive. Therefore‚ different approach is used to examine whether or not the project is profitable. Weighted average cost of capital is used in the discounted cash flow method that shows the
Premium Discounted cash flow Net present value Weighted average cost of capital
by investors. True 2. The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets. True 3. The component costs of capital are market-determined variables in the sense that they are based on investors’ required returns. False 4. The before-tax cost of debt‚ which is lower than the after-tax cost‚ is used as the component cost of debt for purposes of developing the firm’s WACC. False 5. The cost of debt is equal to one minus
Premium Net present value Internal rate of return Weighted average cost of capital
business and is considering a major investment. The investment projects team needs an appropriate rate at which to discount the estimated after-tax cash flow for the investment. Following the business’s normal practice‚ this is to be based on the weighted average cost of capital (WACC). Figures‚ relating to long-term financing‚ included in the business’s most recent balance sheet are: £m Ordinary shares of £0.50 each (160 million) 80 Share premium account 27 Revaluation reserve 26
Premium Stock Generally Accepted Accounting Principles Balance sheet
Investment Banks? As of 2010‚ stand alone Investment banks are numerous. 2. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1‚748.80 dividing the present value of the annual after-tax cash flows by the cost of the project. Explanation: The profitability index is calculated as Net Present Value / Initial Outlay. 3. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500‚000 and has a
Premium Net present value Corporate finance Weighted average cost of capital
NewGrade Energy Case Study Summary of the company: The case study of NewGrade Energy is based on data analysis from 2009. A privately owned company located in Regina‚ Saskatchewan that operates heavy oil upgrader‚ The Company’s ownership structure consists of the Government of Saskatchewan and Federated Co-Operatives Limited each owning 100% of the company and Crown Investment Corporation (CIC) and Consumer’s Co-Operative Refineries Limited (CCRL) both owning 50% (Ivey‚ 2009). At the time
Premium Discounted cash flow Cash flow Weighted average cost of capital
(3) Value of Debt‚ D = $2 Million; (4) rd (Cost of Debt) = 10%; (5) rs (Cost of Equity) = 15%; (6) Shares of stock outstanding = 600‚000 & Stock price‚ Po = $30. The firm’s market value is stable‚ and it expects no growth‚ so all earnings are paid out as dividends. The debt consists of perpetual bonds. a. What is the total Market Value of the firm’s Stock? b. What is the total Firm’s Market Value V? c. What is the firm’s weighted Average Cost of Capital? d. Suppose the firm can
Premium Finance Weighted average cost of capital Stock
project would be worth doing by determining if they will add value to Star. Thus‚ the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value‚ or by solving for the internal rate of return‚ we should be able to see which projects Star should undertake
Premium Net present value Weighted average cost of capital Internal rate of return
to be around $2‚70‚000. For Kohler‚ the court determined share price would have severe economic consequence besides raising the cost of recapitalization. Kohler Company was faced with a very tough decision of whether or not to settle outside of court or go to court to settle with the dissenting shareholders. As per the valuation exercise presented herewith‚ the average enterprise value of Kohler comes to $1‚715 MM which translates to a per share price of $230‚291. The valuation has been carried
Premium Discounted cash flow Stock market Average
4.1.1 Estimation of Beta (β)………………………………………………………..…..………..…22 4.1.2 Estimation of cost of equity………………………………………………….……….….... 23 4.2. Weighted Average Cost of Capital (WACC) 23 4.2.1 Estimation of cost of Debt in 2010………………………….………………………….…24 4.2.2 Estimation of corporate tax rate……………………………………………………….….24 4.2.3 Weighted Average Cost of
Premium Weighted average cost of capital Dividend yield Stock