BA 5802 Financial Management Case Study 2 Emre BULUT Lex Service PLC – Cost of Capital 2056281 Questions: 1. Why is Lex Service PLC concerned about its cost of capital in 1993? What role will an estimate of the cost of capital play within Lex? In general‚ how can and do companies make use of cost of capital estimates? Since there are significant changes in the company for the last 3 years such as descending trend in car and truck market in 1991‚ sale of one of their core electronics
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required to: i) Calculate the operating‚ financial and combined leverages for the two companies ; and Comment on the relative risk position of them 4. a. Define various concepts of cost of capital. Explain the procedure of calculating weighted average cost of capital. b.The following items have been extracted from the liabilities side of the balance sheet of XYZ Company as on 31st December 2005. Paid up capital:
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Consultants‚ to provide quantitative analysis of a prospective project – entering the deep discount brokerage market. Based on the directives given by Mr. Ricketts‚ the primary focus of our analysis has been to derive an accurate estimate of the weighted average cost of capital (WACC) for this project. Mr. Ricketts requested that we also generate a model of the project’s potential cash flows and the impact of those cash flows on Ameritrade’s stock price over the next five years. Our findings are summarized
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| American Home Products Corporation | Case Study | | Table of Contents Introduction 3 Background 3 Culture of the Business 3 Stages of Development 3 Core problem 4 analysis and options 4 Risk analysis 5 First: The Business Risk 5 Second: The Financial Risk 6 Other kinds of risk: 7 Financial Analysis 7 The WAAC 7 Ratio Analysis 11 Recommendations: 12 References: 12 Introduction Background In 1981‚ AHP had reached sales of more than $4 billion by producing
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currently finds the weights for the weighted average cost of capital (WACC) from information from the balance sheet shown in Table 2. Compute the book value weights that the comptroller currently uses for the company’s capital structure. c. Based on the suggestion that the focus should be on market values‚ compute the weights of debt‚ preferred stock‚ and common stock. d. Are book value or market value weights better for calculating the firm’s weighted average cost of capital? 2. a. Critique
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Chapter 14 The Cost of Capital 14-1. Templeton’s investment of $400M will be financed with $300M in debt and $100M in equity. Thus after the purchase‚ Templeton’s balance sheet (market value and book value‚ at t = 0) will look like this: ASSETS $400‚000‚000 DEBT $300‚000‚000 $400‚000‚000 EQUITY $100‚000‚000 $400‚000‚000 ) = 75% in debt financing‚ and ( $100‚000‚000 ) = 25% in equity Thus Templeton is using ( $300‚000‚000 $400‚000‚000 $400‚000‚000 financing. Its debt and equity weights are therefore
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Case Study on Nike Inc. What is the WACC and why is it important to estimate a firm’s cost of capital? The WACC is a firm’s overall cost of capital‚ taking into account the weighted average of its equity and debt costs of capital. A firm’s WACC is the minimum return (hurdle rate) required by its capital providers to stay invested. Therefore managers of a firm should only invest in projects that generate returns exceeding the firm’s cost of capital. For the company’s owners the WACC is the minimum
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NewGrade Energy Case Study Summary of the company: The case study of NewGrade Energy is based on data analysis from 2009. A privately owned company located in Regina‚ Saskatchewan that operates heavy oil upgrader‚ The Company’s ownership structure consists of the Government of Saskatchewan and Federated Co-Operatives Limited each owning 100% of the company and Crown Investment Corporation (CIC) and Consumer’s Co-Operative Refineries Limited (CCRL) both owning 50% (Ivey‚ 2009). At the time
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bonds yielding 8%. The remaining long term debt will be at 7%. The marginal tax rate will remain the same. What will be Bickley’s new Beta with this new 15/85 capital structure? What is the WACC (Weighted Average Cost of Capital) of Bickely with its 30/70 capital structure? Bickley’s average borrowing rate with this capital structure is 7.5%. What will be Bickley’s WACC with its 15/85 capital structure? CHAPTER 15 1. Unlevered Beta of Bickely Bu = 1.3 / [1 + (1 - .40)(
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of HK$ 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 case of Citic Tower II becomes more attractive. Based on the DCF analysis stated in figure 1‚ the option to defer development for 6 months provides Citic Pacific Limited
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