graphs” that are commonly used in corporate finance curriculum to illustrate the wealth effects of capital structure decisions. Objectives: * Introduce the Modigliani-Miller intuition of capital structure irrelevance; * Establish how the cost of equity is affected by capital structure decisions by defining financial risk and introducing the levered-beta capital asset pricing model (CAPM) equation; * Discuss interest tax deductibility and the valuation tax shields; * Explore the
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November 9‚ 2004 Mary Linn Vice President of Finance Ocean Carriers Re: 180‚000 DWT Vessel Proposal Dear Mary: Our analysis of the proposal for the construction of a new 180‚000 DWT vessel has brought us to the conclusion that the project should not be undertaken. Our recommendation and decision is based on a discounted cash flow analysis of expected future cash flows from the vessel that produced a net loss for the project of $7‚201‚639. Included in this recommendation are a number
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What are the strengths and weaknesses of these criteria as opposed to net resent value? On which criteria would you base your recommendation? 3. Evaluate the forecast. Are all relevant cash flows present? Are the assumptions reasonable? Should the cost of new sales recruits be included in the forecast? 4. If‚ in response to the question above‚ you believe the analysis should be modified‚ do so and prepare to discuss the results you obtain. What assumptions are the "key drivers" of your results
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consider the betas from Boeing’s commercial sector as well as the defense sector. One beta cannot be used for the whole company due to the vast difference in volatility between the two sectors. Once these two separate betas are calculated‚ they can be weighted based on the % revenue which each industry contributes to the company and then a WACC can be calculated for Boeing as a whole. This number is then compared with the IRR of the 7E7 project to determine whether the project should continue. Based
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SEMINAR 4: FRIDAY 7th NOVEMBER 2014 ASSET PRICING Seminar Questions to be completed before class 1. Explain‚ using examples the difference between systematic risk and unsystematic risk. 2. Why is it useful to calculate returns on assets using either a one-factor model such as‚ CAPM or a multi-factor model such as‚ APT? 3. Answer questions 8 and 10 on page 316 of the Hillier et al. (2013) text. 4. Multifactor Model The monthly return on an asset‚ Rs is determined by the following equation: Rs = 0
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certainty‚ the company can have higher level of leverage and it is easier to separate project assets from the parent company. Advantages and Disadvantages: 1) Advantages a. Maximize Leverage b. Off-Balance Sheet Treatment c. Agency Cost d. Multilateral Financial Institutions 2) Disadvantages a. Projects V/S Division b. Complexity c. Macroeconomic Risk d. Political Risk: 2. If Venerus implements the suggested methodology‚ what would be the range of discount
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the low-fare travel industry was gaining momentum‚ the September 11 attack brought a massive downturn to the already-risky airline industry. However‚ JetBlue was still able to deliver good performance despite the circumstances. It offered the lowest cost per available-seat-mile of any major US airlines. In order to support JetBlue’s growth plan and offset portfolio losses by its venture-capital investors‚ JetBlue wished to raise capital through initial public offering (IPO). The purpose of this report
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can refer to your Essentials of Business I Corporate Annual Report project for the appropriate ratios.) Comment on the financial health of the company. Please look at ratio trends and compare to industry average. (4) WEIGHTED AVERAGE COST OF CAPTIAL (WACC): Estimate the components of the cost of capital for your company using market data. a)
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AF 3313 2011-12 Sem 2 Written Assignment Name: Shi Yu ID: 10821504d Tutor: Ho Ming Lawrence FUNG Q1: Definition of efficient market: The efficient market is defined as a market where competition among investors should work to eliminate all positive-NPV trading opportunities or‚ equivalently‚ that securities with equivalent risk should have the same expected return based on their future cash flows‚ given all information that is available to investors. Definition of arbitrage: It is
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Tools Variance Analysis | | When actual material costs are different than total standard costs determine the cause. Variance Analysis | | When actual material costs are different than total standard costs determine the cause. Contribution Margin Analysis | Management has received a special order. How will profitability be impacted if the order is accepted? | Contribution Margin Analysis | Management has received a special order. How will profitability be impacted if
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