Case #16 The Boeing 7E7 Synopsis and Objectives In 2003, the Boeing Company announced plans to build a new “super-efficient” commercial jet called the “7E7” or “Dreamliner.” This was a “bet the farm” gamble by Boeing, similar in magnitude to its earlier introductions of the 747 and 777 airliners. The technological superiority of the new airframe, as well as the fact that it would penetrate a rapidly growing market segment, were arguments for approval of the project. On the other hand
Words: 448 - Pages: 2
Resources Inc.: Cost Of Capital Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as
Words: 305 - Pages: 2
the Capital Asset Pricing Model. He shared this award with Merton Miller and economist Harry Markowitz, who’s earlier work, introduced the theory of modern portfolio and diversification. Along with Markowitz (1952), he began the theory of the model in 1956 when he was trying to find a dissertation topic. He built on Markowitz’s suggestions and set out his developed theory in his book “Portfolio Theory and Capital Markets.” (1970). This essay will try to outline the Capital Asset Pricing Model, explain
Words: 1786 - Pages: 8
sdf Calculating Returns: CAPM vs. DCF Kalen Hickey American Military University The Capital Asset Pricing Model (CAPM) and Discounted Cash Flows Method are different techniques for determining returns on an investment. These concepts deal with the time value of money and the other investment factors. “If decisions are made that ignore the interaction of scale and risk, then cash flows are misvalued and suboptimal operations decisions are made” (Lederer & Mehta). Companies use CAPM
Words: 654 - Pages: 3
QUESTIONS FOR THE OVERALL ASSIGNMENT 1. What is the best way to estimate the company and divisions’ cost of capital? Answer: The best way to estimate the cost of capital is by using the CAPM (Capital Asset Pricing Model) where the Weighted-Average Cost of Capital (rwacc) is given by the formula Where, D is the market value of the net debt E is the market value of the total equity V is the total market value of debt and equity = D + E T is the corporate tax rate rd is the appropriately
Words: 1628 - Pages: 7
the CAPM holds with a riskless asset and the market porfolio contains a zero beta stock. Since everybody holds the market, this means that everybody willing chooses to hold a zero beta stock. What I want to know is why people just don’t drop this stock out of their portfolios and replace it with the risk free security. What would happen to the expected return of my portfolio if I took the 5% of my wealth out of the zero beta stock and put it in the risk free asset instead? Nothing, since the from
Words: 485 - Pages: 2
Hewlett-Packard, even though they are both information technology companies. Our text refers to the Fama & French (FF) studies applied to stock valuation as one of the methods. However, in searching out an article about these studies, it seems that their studies are used mostly in academia even thought it seems to have a good and practical application to stock portfolios. The FF studies point to three factors that the SML should have, which are the stock’s CAPM beta for measuring market risk, the size
Words: 476 - Pages: 2
The Capital Asset Pricing Model: An Overview Email Icon Email Print Icon Print Posted: Nov 24, 2010 | Reprints Icon Reprints Filed under Economics Financial Theory Ben McClure Contact | Author Bio Advertisement No matter how much we diversify our investments, it's impossible to get rid of all the risk. As investors, we deserve a rate of return that compensates us for taking on risk. The capital asset pricing model (CAPM) helps us to calculate investment risk and what return on investment
Words: 1195 - Pages: 5
Manage rather than own hotel assets. This measure allows the company to be more involved in the management of their hotels. They have more control on how the money is used but also have more responsibilities concerning the customers and employees. Monitoring and controlling the performance of the hotels and also the expenses and resources will be easier. Not owning the hotel on the other hand will decrease tied capital that results of just holding each hotel as an asset. Invest in projects that increase
Words: 1828 - Pages: 8
Cost of Capital Estimate for Midland Energy Resources, Inc. In the first section of my report, I list out the main models and methods applied to estimate the cost of capital for Midland’s three divisions, general assumptions made and the corresponding justifications. In the second section, Calculations, I not only compute the cost of capital based on the general assumptions previously made, but also discuss specifics of each division and the additional adjustments or assumptions made to justify
Words: 1573 - Pages: 7
