Equity $90 What is the firm’s weighted-average cost of capital at various combinations of debt and equity; given the following information? Show work Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 9% 14% ? 50% 10% 15% ? 60% 12% 16% ? WACC = W d * K d + W e * K e Debt/Assets Wd After-Tax Cost of Debt We Cost of Equity Cost of Capital 0% 0 8% 1 12% 0
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Ordinary share price (ex div basis) Earnings per share Proposed payout ratio Dividend per share one year ago Dividend per share two years ago Equity beta 5 million $3·30 40·0c 60% 23·3c 22·0c 1·4 Other relevant financial information Average sector price/earnings ratio Risk-free rate of return Return on the market 10 4·6% 10·6% Required: Calculate the value of Danoca Co using the following methods: (i) price/earnings ratio method; (ii) dividend growth model; and discuss
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6 Ratio Analysis 7 Profitability Ratios 7 Growth Ratios 7 Efficiency Ratios 7 Financial Strength Ratios 8 Dividend Ratios 8 Management Effectiveness Ratios 8 Discounted Cash Flow Valuation 9 Calculation of Weighted Average Cost of Capital 9 Cost of Equity Calculation 9 Pro Forma Financial Statements 10 Pro forma Profit and Loss Statement 10 Pro forma Balance Sheet 11 Proforma Cash Flow Statement 11 DCF using FCFF 11 Sensitivity Analysis 12 Results
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To: The Management Team of Pleasure Craft INC. From: Group A+ Subject: Expanding Production Date: September 29‚ 2010 Since beginning 40 years ago‚ Pleasure Craft INC. has been successful in both the domestic and international marketplace. Currently producing two products‚ snowmobiles and personal watercraft‚ both of which have become mature markets and thus giving little room to grow‚ two options have been determined to further the growth of Pleasure Craft INC
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3 | Week 4-6 | Risk‚ Return and the Cost of Capital | 4 | Week 7-9 | Corporate Financing and Capital Structure | 5 | Week 10 | Payout Policy | 6 | Week 11 | The Efficient Markets Hypothesis and Behavioural Finance | 7 | Week 12-15 | Introduction to Option Pricing Theory | Coverage: 1. Project Evaluation Criteria Market-based project evaluation criteria‚ Net Present Value (NPV)‚ Internal Rate of Return (IRR)‚ Profitability Index (PI) Relevant costs in capital budgeting‚ Break-even‚ sensitivity
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in its capital structure and the cost of debt would have only a marginal effect on the overall cost of capital. The current capital structure of Intel is not optimal yet since optimal capital structure is making minimum weighted-average cost of capital. Portion of Equity and Debt: Long term debt = 363 = 363/4781 = 7.59% Common Equity =4418 = 4418/4781 = 92.4 % Cost of Capital: Cost of debt =interest expense/long term debt = 29% Cost of Equity = Since Intel has
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has an up-front cost (t = 0) of $120‚000‚ and it is expected to produce cash inflows of $80‚000 per year at the end of each of the next two years. Two years from now‚ the project can be repeated at a higher up-front cost of $125‚000‚ but the cash inflows will remain the same. • Project B has an up-front cost of $100‚000‚ and it is expected to produce cash inflows of $41‚000 per year at the end of each of the next four years. Project B cannot be repeated. Both projects have a cost of capital of 10
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much business risk is associated with Sterling’s proposed acquisition of the germicidal‚ sanitation‚ and antiseptic products unit of Montagne Medical? 3 What is the cost of equity capital appropriate for evaluating the free cash flow associated with this investment? 4 What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow? 4 b.What are the amounts and timing of the acquisition investment’s free cash flow from 2013 through 2022
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Chiffon Case Note: This case assumes that Jell-O would realize losses with or without the Chiffon project; however‚ a review of this case suggests the opposite. Actually‚ Jell-O would grow and the cost of the agglomerator should be included as an incremental cash flow. Problem Statement In 1967‚ General Foods (GF) was contemplating the launch of a new product line - Chiffon. As one of the market leaders in the food business‚ the company was focused on increasing and protecting its current
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2004 1. Weighted average cost of capital for Marriott Corp. The WACC is calculated using the formula: This uses the underlying assumption that the debt-equity ratio for the firm remains constant. In Marriott’s case the corporation’s target leverage ratio based on interest coverage target is set at 60% as taken from Table A. The WACC for the whole firm represents the average cost of capital of the firm’s underlying operating structure. To use this WACC it must be assumed that the cost of capital
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