1997 35.5% 0.25 0.00 0.00 1996 39.4% 1995 35.1% Average 36.7% Comparable companies’ βE Tax Rate Beta Debt Leverage (D/V) Leverage (D/E) Discount Brokerage Firms Charles Schwab Quick & Reilly Waterhouse Securities 1997 35.5% 1996 39.4% β E from Jan’92-Dec’96 2.30 2.20 β E from all months 2.35 2.30 1.40 0.25 0.00 0.00 β E from Jan 92-Sep 96 2.26 2.36 3.19 1995 35.1% Average 36.7% Comparable companies’ leverage Tax Rate Beta Debt
Premium Weighted average cost of capital Debt
Part I – Perfect capital markets‚ capital structure and cost of capital (15 points) GP Corp. has common stock with a market value of $200 million and riskless debt with a value of $100 million. Investors expect a 15% return on the stock and a 6% return on the debt. Assume perfect capital markets without any taxes. a) Suppose GP issues $100 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? (4 points) b) Suppose instead GP issues $50 million
Premium Weighted average cost of capital Generally Accepted Accounting Principles Corporate finance
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 out using different methodologies such as Discounted Cash Flow‚ Dividend Growth Model and Comparable Company Analysis. The Enterprise Value of $1‚715 MM is the average of values obtained through these methods. Based on the valuation exercise‚ it is quite likely that
Premium Discounted cash flow Stock market Average
typically the most effective way to increase shareholder wealth. 7. Buying and selling in more than one market to make a riskless profit is called: Arbitrage 8. Given an accounts receivable turnover of 8 and annual credit sales of $362‚000‚ the average collection period (360-day year) is 45 Days Explanation: ACP = 360 / 8 = 45 Days 9.
Premium Net present value Corporate finance Weighted average cost of capital
Nike Inc. – Cost of Capital & Stock Valuation Steven Seagal George Clooney Brad Pitt Background Nike Inc’s share price has declined considerably over the past few years and Kimi Ford‚ fund manager of NorthPoint Lager-Cap Fund‚ was considering investing in the stock. Nike was looking to revitalize itself by addressing both top-line growth and operating performance. The goal was to improve revenues that had plateaued‚ and increase profits that had decreased over the years. One
Premium Stock Discounted cash flow Weighted average cost of capital
Can One Size Fit All? The Oceanic Corporation‚ a Chesapeake‚ VA based company‚ was established in 1994. Glenn Rodgers III founded the corporation‚ which was privately owned at the time‚ after his retirement from Norentech Corporation. The Oceanic Corporation was originally formed to provide ship repair services and quickly earned a Department of Defense (DOD) certified Alteration Boat Repair (ABR) designation. Among its specialties were structural welding‚ piping system installation and repairs
Premium Balance sheet Weighted average cost of capital Generally Accepted Accounting Principles
by taking the average returns on the short-term T-Bill rate from 1951-1975. This rate was used because we know Peabody was a short-term investment and the years 1951-1975 give a more accurate reflection of the market return than using the figure from 1926-1987. Furthermore‚ the weight of debt and equity were .35 and .65 respectively. These figures were used because we are told that approximately 65% of Kennecott’s net worth was tied up in Peabody. These figures gave a weighted average cost of capital
Premium Weighted average cost of capital Rate of return Net present value
default spreads over 10-year Treasury bonds (note that these differ from the more general corporate bond yields shown in Exhibit 4.). What do these quotes imply about BKI’s cost of debt at the various debt levels and credit ratings? Compute BKI’s weighted average cost of capital at each of the indicated debt levels. What do your calculations imply about Blaine’s optimal capital structure? Based on these calculations‚ how many shares should Blaine purchase‚ and at what
Premium Finance Weighted average cost of capital Capital structure
main elements in calculating the cost of capital? How would an increase in debt affect it? How would you identify an organization’s optimal cost of capital? Is the cost of capital increasing or decreasing for most companies? What is meant by Weighted Average Cost of Capital (WACC)? What are the components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term
Premium Net present value Investment Weighted average cost of capital
Guillermo Furniture Store Analysis Guillermo Furniture manufacturing‚ located in Senora‚ Mexico‚ has been a popular furniture manufacturing company in the area for years until the late 1990s when new competitors from overseas entered the market and an influx of people and jobs raised the cost of labor substantially. Although Guillermo was well established in his business and the work was reliable‚ he was unable to keep up with the competitors and their high-tech approach to furniture making. “Firms
Premium Financial statements Weighted average cost of capital Income statement