Assignment Chapter 11 Assignment Chapter 11 True/False Indicate whether the statement is true or false. ____ 1. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. ____ 2. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with
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you identify an organization’s optimal cost of capital? Is the cost of capital increasing or decreasing for most companies? DQ 2 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 capital? DQ 3 What is an IPO? How does an IPO allow an organization to grow financially? When is a merger or an acquisition‚ instead
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structure is the capital structure that will optimize the company\’s stock price‚ it is also the capital structure that minimizes the company\’s weighted-average cost of capital (WACC). Calculating Weighted Average Cost of Capital A company’s weighted average cost of capital (WACC) is calculated as follows: Formula 11.8 WACC = (wd) [kd (1-t)] + (wps)(kps) + (wce)(kce) Where: Wd = weight percentage of debt in company’s capital structure Wps = weight percentage of preferred stock in company’s
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procurement ‚ efficient supply chain and wise investment . Threat First of all ‚ Cadbury will face the intense competition against other branded suppliers even global competitors . According to above statistic ‚ Mars-Wrigley and Nestle are the main competitors especially Mars-Wrigley the strongest market sharing in total confectionery . When they set an aggressive price and promotion activity ‚ it ‘s possible to occur price wars in the market which will induce a main threat for
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value creation Question 1- What was the reason the fast growing company Walgreen and the significantly slower growing company Wrigley‚ Between 1968 and 2007 had nearly the same shareholder return? For example‚ earnings growth alone can’t explain why investors in drugstore chain Walgreens‚ with sales of $54 billion in 2007‚ and global chewinggum maker Wm. Wrigley Jr. Company‚ with sales of $5 billion the same year‚ earned similar shareholder returns between 1968 and 2007.3 These two successful
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weight = .15/1.15 = .13 Long-term debt weight = 1/1.15 = .87 Since the accounts payable has the same cost as the overall WACC‚ we can write the equation for the WACC as: WACC = (1/1.8)(.14) + (0.8/1.8)[(.15/1.15)WACC + (1/1.15)(.08)(1 – .35)] Solving for WACC‚ we find: WACC = .0778 + .4444[(.15/1.15)WACC + .0452] WACC = .0778 + (.05797)WACC + .0201 (.9420)WACC = .0979 WACC = .1039‚ or 10.39% We will use basically the same equation to calculate the weighted average flotation cost‚ except we will
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L.Spight FIN100 – Week 10 Integrative Case Study Due – 9/5/10 Case Information: You work for HydroTech‚ a large manufacturer of high pressure industrial water pumps. The firm specializes in natural disaster services‚ ranging from pumps that draw water from lakes‚ ponds‚ and streams in drought stricken area to pumps that remove high water volumes in flooded area. You report directly to the CFO. Your boss has asked you to calculate HydroTech’s WAAC in preparation for an executive retreat
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If the company uses its overall WACC it may have divisions accept projects with returns below their respective WACC which will result in losses and vice versa. 2. The Weighted Average Cost of Capital (WACC) is as average that reflects the expected return on all of a companies securities. For the WACC of Marriott as a whole represents tall of Marriott’s divisions as one company. Marriott’s divisions are lodging‚ restaurant and contract services. To calculate the WACC a risk free rate was used of 8
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cost of capital is an essential component in WACC. WACC is composed of cost of equity and cost of debt.The Mortensen’s estimates are used in various ways including asset appraisals for both capital budgeting and financial accounting‚ performance assessments‚ M&A proposals and stock repurchases at division ‚business unit level and corporate level. 2. The Calculation for Wacc Midland’s wacc at the corporate level is calculated based on the formula WACC=rd*(D/V)*(1t)+re*(E/V). We calculate the
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Chapter 11: The Basics of Capital Budgeting 1. A firm should never accept a project if its acceptance would lead to an increase in the firm’s cost of capital (its WACC). a. True b. False ANSWER: False 2. Because “present value” refers to the value of cash flows that occur at different points in time‚ a series of present values of cash flows should not be summed to determine the value of a capital budgeting project. a. True b. False ANSWER: False 3. Assuming that their NPVs based on the firm’s
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