of project finance for Midland Energy Resources must determine the weighted average cost of capital (WACC) for the company as a whole and each of its divisions as part of the annual capital budgeting process. As each division has different functions and risk associations, the company needs separate discount rate to evaluate its projects. This report is prepared to find out the realistic measures for assessing cost of capital for Midland Energy Resources. After careful evaluation of available information
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of project finance for Midland Energy Resources must determine the weighted average cost of capital (WACC) for the company as a whole and each of its divisions as part of the annual capital budgeting process. As each division has different functions and risk associations, the company needs separate discount rate to evaluate its projects. This report is prepared to find out the realistic measures for assessing cost of capital for Midland Energy Resources. After careful evaluation of available information
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recommending Nike as a “Strong Buy” and others recommending a “Hold.” In case 13, Nike Inc.: Cost of Capital, I am acting as a portfolio manager to estimate Nike’s cost of capital to determine whether the stock is overvalued or undervalued. II. Alternative Solutions • Dividend Growth Model (DGM) see appendix for calculations • Capital Asset Pricing Model (CAPM) see appendix for calculations • Weighted Average Cost of Capital (WACC) see appendix for calculations III. Analysis of the Alternatives
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*Interval measure=Current assets/Average daily operating costs,*Average daily operating costs=Cost of goods sold/365,*Total debt ratio=(Total assets – Total equity)/Total assets,*Debt/equity ratio=Total debt/Total equity,*Equity multiplier=Total assets/Total equity,*Long-term debt ratio=Long-term debt/(Long-term debt + total equity),*Times interest earned=EBIT/Interest,*Cash coverage ratio=(EBIT + Depreciation)/Interest,*Inventory turnover=Cost of goods sold/Inventory,*Day’s sakes in inventory=365days/Inventory
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possible place in the NorthPoint Large-Cap Fund, Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically, the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses, be it debt or the many types of equity, by their respective weights. It is the rate of return that a company needs
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values. Weighted Average Cost of Capital and Discounting of Terminal Values However, the weighted average cost of capital represents the overall cost of financing the company’s operations and this value represents the returns required by the equity holders and the returns required by the debt holders. In case of AirThread, the cost of equity would be calculated using the average returns offered by the market for an equity share with similar characteristics to the equity share of AirThread, further
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University of Wollongong Year Computing the divisional cost of capital using the pure play method H. W. Collier∗ S. Haslitt‡ T. Grai† C. B. McGowan∗∗ of Wollongong, collier@uow.edu.au University, USA ‡ Oakland University, USA ∗∗ Norfolk State University, USA † Oakland ∗ University This is a preprint of an article accepted for publication as Collier, HW, Grai, T, Haslitt, S and McGowan, CB, Computing the divisional cost of capital using the pure play method, Applied Financial Economics
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CHAPTER 10 The Cost of Capital Problem solving Lidija Dedi 9-1 Problem 1: Your company’ stock sells for $50 per share, its last dividend was $2, its growth rate is a constant 5%, and the company will incur a flotation cost of 15% if it sells new common stock. What is the firm’s cost of new equity? 9-2 Problem 2: Alpha’s stock currently has a price of $50 per share and is expected to pay a year-end dividend of 2,50 per share. The dividend is expected to grow at a constant
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shareholders in the form of dividend payment and increased share value. However, the source of finance affects a company’s overall cost of capital and by extension its dividends to shareholders. This report addresses the importance of the capital market and the efficient market hypothesis theories. The various source of finance available to large companies and the related cost. As well as the importance of the dividend decision and its possible affect on the company’s share price. [pic] 2.0 The role
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the board of directors to calculate the company’s cost of capital accurately in order to apply it into several vital analyses of the corporation. This paper aims to estimate the corporate and divisional cost of capital for the next fiscal year and along with the estimations, several assumptions and arguments will be discussed to provide better overview and understanding of the whole process to the managers. II. INTRODUCTION TO WEIGHT AVERAGE COST OF CAPITAL (WACC): WACC is the weight average of
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