firm’s capital structure. Specifically, your boss is considering changing the firm’s debt level.Your boss remembers something from his MBA program about capital structure being irrelevant, but isn’t quite sure what that means. You know that capital structure is irrelevant under the conditions of perfect markets and will demonstrate this point for your boss by showing that the weighted average cost of capital remains constant under various levels of debt. So, for now, suppose that capital markets
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Marriott's corporation: the cost of capital What is the weighted average cost of capital for Marriott Corporation? Are the four components of Marriott's financial strategy consistent with its growth objective? Marriott Corporation is an international company who's the growth over the year has been more than satisfactory. In 1987, Marriott's sales grew up by 24% and its return on equity stood at 22%. Moreover the sales and earnings pr share has doubled over the previous year. The company
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is currently one of the primary producers of crude oil in the United States and is one of the top producers of Alaska crude oil. PPC is currently the lowest cost refiner on the western side of the globe, and has been expanding capital investments in numerous countries. Pioneer began expanding beyond their current industry into several capital ventures. Some have included vertical investments through the production of crude oil to the marketing of refined petroleum products, and horizontal investment
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project with the appropriate cost of capital, determine New England Seafood Company’s future net cash flows, and determine the efficient utilization of land across company processing divisions. We have determined that an appropriate cost of capital is 10%. This 10% is the weighted average cost of capital for New England Seafood Company and we find it accurately represents the risk for this project. New England Seafood Company traditionally adjusts this cost of capital up or down 3% to compensate
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determine an appropriate Cost of Capital for Marriott Corporation. To do so, we have based our assesment on the information and assumptions contained in the text of Dan Cohrs “Marriott Corporation: The Cost of Capital”. As stated in the lecture, Marriot Corporation is composed of three different divisions: lodging, restaurants and contract services. So, during this workshop we calculated a different cost of capital for each one of the three divisions. To determine the Cost of Capital for each division
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CHAPTER 14 COST OF CAPITAL Answers to Concepts Review and Critical Thinking Questions 1. It is the minimum rate of return the firm must earn overall on its existing assets. If it earns more than this, value is created. 2. Book values for debt are likely to be much closer to market values than are equity book values. 3. No. The cost of capital depends on the risk of the project, not the source of the money. 4. Interest expense is tax-deductible. There is no difference between pretax
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Marriott's corporation: the cost of capital What is the weighted average cost of capital for Marriott Corporation? Are the four components of Marriott's financial strategy consistent with its growth objective? Marriott Corporation is an international company who's the growth over the year has been more than satisfactory. In 1987, Marriott's sales grew up by 24% and its return on equity stood at 22%. Moreover the sales and earnings pr share has doubled over the previous year. The company
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The Weighted Average Cost of Capital is the average of the costs of a company's sources of financing-debt and equity, each of which is weighted by its respective use in the given situation. By taking a weighted average, it shows how much interest the company has to pay for every marginal dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and
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production. This gives PPC an advantage of being the lowest cost refiners in the West Coast by provide all of Alaskan crude oil, but it also requires a broad marketing network in the West Coast. Therefore, this integration required them to decrease their overall risk and optimize their overall performance through collaboration and coordination. Fact Pattern In 1991, PPC spend about $3.1 billion on capital expenditures and forecasted another capital expenditure of a $4.5 billion in 1991 (an increase from
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petrochemicals. They needed to decrease their overall risk and optimize their overall performance and would only be able to by collaboration and coordination among their refining and marketing network divisions. PPC were spending billions of dollars on capital expenditures and were expecting an increase in the next year. These expenditures were allowing for the company to process heavy Alaskan crude oil more efficiently and also provided good returns. In the next five years, the company was going to need
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