History 2 a. Top Competitors 4 b. Major Product and Services 5 c. SWOT Analysis 5 3. Calculating Cost of Capital 6 a. Calculating Cost of Equity 7 i. Risk free rate 7 ii. Market Risk Premium 8 iii. Beta 8 b. Calculating Cost of Debt 9 c. Weighted Average Cost of Capital ( WACC ) 10 d. WACC- EnCana Corp. 2010 12 4. Discussion Questions & Summary 12 a. Hurdel Rate 12 b. Retained Earnings 13 c. Depreciation & Deferred Taxes 14 d. Summary: 14 5. References 15 Introduction
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method of calculating cost of capital is CAPM (capital asset pricing model). One important point here is that as company was utilizing both debt and equity as its source of funds then we calculate WACC (weighted average cost of capital) instead of simple cost of capital. Calculating weighted average cost of capital: In CAPM model we need estimates for following items: 1. Risk free rate: Generally a return on long term government bonds is treated as risk free rate because relatively no risk
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Nike‚ Inc.: Cost of Capital Case 15 Financial Administration FINC 5713-180 Team 1 Fall 2013. October 8‚ 2013. Introduction Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund management firm‚ is considering to buy some shares from Nike‚ inc even if it’s share price had declined from the beginning of the year‚ for the Northpoint Large-cap fund she managed which invested mostly in Fortune 500 companies and it was doing well despite the decline
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Quiz 2 Corporate Finance NAME ______________________ Apring 2013 2012 70 pts Show all work MC=5pts each 1. Find the EPS (y-axis) // EBIT (x-axis) crossover point of the following two capital structure plans. Complete the table and Draw the graph and show all the points including crossover‚ where line crosses y-axis‚ and the three EBITs below 30pts Assets = $3‚000‚000 Stock Price = $20 Interest Expense = 12% PLAN I D/E = 1.1 Recession Expected
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cost of common equity. Use the average of results from the dividend growth model and the security market line. Common stocks | | Dividend | 2‚5 | Growth Rate | 6% | Price | 35 | Cost of equity | 13‚57% | Common stocks | | Market return | 12% | Risk Free | 3% | Beta | 1‚2 | Cost of equity | 13‚80% | Common stocks | | SML | 14% | Dividend Growth Model | 0‚135714 | Average cost of equity | 13‚69% | 4. Compute BioCom’s weighted average cost of capital. Should you
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all-equity-financed firm would __________. 15)If a firm wants to lower its weighted average cost of capital (WACC)‚ one way to do so would be to 16)Boeing is a world leader in commercial aircraft. In the face of competition‚ Boeing often faces a critical __________ decision whether to develop a new generation of passenger aircraft 17)Ideas for capital budgeting projects come from all levels within an organization. The bottom-up process results in ideas moving __________ through the organization
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includes 40% debt * Industry average unlevered beta is 1.8 * 10 year Italian Government bond yield is at 4.5% * JP Morgan has issued an estimate for Expected Market Return at 8.5% * Euribor is 2% * Before tax cost of debt = 5% * Tax rate = 30% Please calculate the weighted average cost of capital (WACC) for this firm. 2. You are now asked to calculate the WACC for a toothpaste manufacturer with the following data: * Average share price for last 6 months = €34/
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than the current average risk level of the company. Therefore‚ adopting what kind of discount rate in evaluating a new project will be the key of whether or not to proceed with the project. The most recent studies on the combination of MM theory and CAPM model are based on the formula of cost of capital‚ which could get a beta equation of levered firm and unlevered firm. However‚ when we treat a company as an asset portfolio‚ the risk factor of the asset is the weighted average risk of equity and
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to make the online trading platform faster and closer to 100% reliability. Lastly‚ he has proposed increasing Ameritrade’s advertising budget to a cumulative $155 million for 1998 and 1999 fiscal years. Issue The question presented is what weighted average cost of capital should be employed to value the planned investments and changes in the advertising budget. Comparable Firms In my view‚ the true competitors of Ameritrade are securities brokerage firms‚ not Internet firms‚ as Ameritrade derives
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from one of the company’s founders. Compute Nova Chemical’s weighted average cost of capital. Nova Chemical’s 1989 WACC Common Shares 15.2 (Exhibit 7) Price per Share 33.00 (5-Year Average) Equity (mkt value) 501.6 Bank Debt 84.5 (Exhibit 7) Current Portion LTD 10 (Exhibit 7) Long Term Debt 240 (Exhibit 7) Interest Bearing Debt 334.5 Source Amount (MM) % of Total Tax Cost Weighted Cost Debt (book value) 334.5 40.0% 6.6% 2.62% Equity
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