1. What is the WACC of the company?
On the September 24, 2013, the WACC of General electric company is 6.64%.

2. What does WACC represent to the firm?
The WACC is a way to calculate the cost of different parts of capital in which each category of capital is proportionately weighted. The function of WACC is telling the CEO a project deserves to invest or not. The WACC of GE is 6.64% which is means if ROIC of a new project is higher than 6.64%, the GE will consider about to invest it. The ROIC is just 7% only a little high than the WACC(6.64%). The GE faced a dilemma.

3. How does Beta influence the WACC?
Beta is a number to tell the investor the risk level to invest this company in stock market. If the beta higher than 1, which is means the risk to invest this company higher than the average risk level of market, the investor would face a high risk. So, the beta will affect the cost of common stock and preferred stock. And the cost of stock is an important component of capital. We could the find the beta is a reason to make the WACC high. For example, the beta of GE is 1.24,and the WACC is 6.64%

4. How does the Risk Free Rate influence the WACC?
According to the capital asset pricing model, the CAPM= risk free rate+ (market return-risk free return)beta. By using this formula, the beta of GE is 1.24; keep the market return invariant, if the risk free rate increase, the CAPM will also increase. So the WACC should increase too.

5. How does the WACC for a firm and the IRR of a project within the company correlate to each other? The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. This means if the IRR increases, the net cash flow of the company will also increase. And the net cash flow could reflect the capital of the company input, which means the more net cash flow the company got, the lower capital of the company input. Based...

...Assignment #2 – GE Money America Case Study
GE Money America (formerly GE Consumer Finance) is the consumer finance brand for GE Consumer Finance worldwide. With more than $163 billion in assets, GE Money is a leading provider of credit services to consumers, retailer, and auto dealers in fifty countries around the world. GE Money Americas offers a range of financial products, including private-label credit cards, personal loans, bank cards, auto loans and leases, mortgages, corporate travel and purchasing cards, debt consolidation and home equity loans and credit insurance. (Goldsmith, 2010)
1. Provide a brief description of the status of the company that led to its determination that a change was necessary. Three things led to the determination that a change was necessary at GE Money America:
(1) Staffing Dilemma - the cost per hire averaged more than $8,000 and the time to fill a position typically exceeded three months was an unsustainable process for GE Money Americas. The use of a decentralized staffing process and inconsistent interview practices also contributed to the staffing dilemma.
(2) Technology – existing technologies did not enable them to execute a highly successful, high-volume recruiting program with the ability to produce metrics on demand.
(3) Strategy Sourcing – although the internet...

...STRENGTHS
Global recognition: General Electric has ventured into the world market thus gaining global recognition for its unique goods and services. In the year 2009, Forbes magazine ranked GE as the world's largest company. Hurbert (2007) notes that General Electric's brand is the world's most recognized brand. This kind of recognition has given it a competitive edge over other companies due to its ability to attract more customers.
Global strength and competitiveness:The Company’s products have been recognized for their quality and the company is known for meeting customer-specific needs (General Electric, 2009). As a result, it has attracted numerous clients including corporations and government agencies and its competitive position is quite favorable. GE is the biggest lender in many of the countries where it invests with exception of the United States (Hurbert, 2007). Its power generation equipment generates a quarter of the world's electricity everyday.
Excellent Management: GE utilizes a unique management style, whereby business operations are divided into business units. Each business unit plays a distinct role within the company and has its own independent management. Examples include GE Commercial Finance, GE Equipment Services, GE Energy, GE Insurance, and GE Consumer Finance among others. This kind of management...

...change? What incentives to maintain the past?
2. What do you think of the broad objectives Immelt has set for GE? Can a giant global
Conglomerate hope to outperform the overall market growth? Can size and diversity be made an asset rather than a liability?
3. What is your evaluation of the growth strategy (a strategy for a giant global conglomerate with a portfolio of mature industrial businesses) Immelt has articulated? Is he betting on the right things to drive growth?
4. How does this case illustrate how strategic intent needs to be matched by both organizational capability and managerial competence; and show how such assets were developed?
5. Examine how broad strategic objectives can be translated into a program of implement able actions.
6. Demonstrate how Immelt’s strategy went beyond optimization to innovation.
7. Show how this new strategy focused on customers.
8. Analyzes how this new strategy emphased services. Was enough done to balance the portfolio of products and services?
9. After 4 ½ years, did Immelt succeed in his objectives? How well is he implementing his strategy? What are his greatest achievements? What is most worrying to you?
10. Beyond this case: We have the benefit of being 4 years beyond this case. What has happened to GE in that timeframe? How has it changed its strategy? It is currently having trouble with GE Capital and outstanding loans and is divesting itself of NBC to...

...Final Finance Exam Notes
Definitions:
1. Capital Budgeting is the process of evaluating proposed large, long-term investment projects.
Capital budgeting is primarily concerned with evaluating investment alternatives.
The first step in the capital budgeting process is idea development.
A characteristic of capital budgeting is the internal rate of return must be greater than the cost of capital.
One of the simplest capital budgeting decision method is the payback method.
Capital budgeting techniques are usually used only for projects with large cash outlays.
2. Payback period is the number of time periods it will take before the cash inflows of a proposed project equal the amount of the initial project investment (a cash outflow). The payback period is calculated by counting the number of years it will take to recover the cash invested in a project.
3. Net present value is the dollar amount of the change in the value of the firm as a result of undertaking the project.
With non-mutually exclusive projects, the net present value and the internal rate of return methods will accept or reject the same project.
The Net Present Value Method is a more conservative technique for selecting investment projects than the Internal Rate of Return method because the NPV method assumes that cash flows are reinvested at the firm's weighted average cost of capital.
The net present value assumes returns are reinvested at the cost of capital.
If an...

...Finance Practice Assessment
1. Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?
A. No external financing is required.
B. $100,000
C. $200,000
D. $300,000
2. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of returns?
A. $28,800
B. $4,000
C. $4,800
D. $35,200
3. Riley Co. is considering a short-term or long-term financing plan for $6,000,000 in assets. They expect the following 1 year rates over the next 3 years: 7%, 9%, and 12%. Their long-term interest rate will be 9% for the 3 years. Assuming the rates follow their expectations, what will be the difference in interest costs over the 3 years?
A. Long-term interest will be $60,000 more than short-term interest
B. Long-term interest will be $60,000 less than short-term interest
C. Long-term interest will be $1,140,00 less than short-term interest
D. None of these
4. Average daily remittances are $5 million, and "extended disbursement float" adds 3 days to the disbursement schedule, how much should the firm be willing to pay for a cash...

...UBFF2013 BUSINESS FINANCE
Question:
1.
(a)
Frodo Baggins has RM1,500 to invest. His investment counselor suggests an investment that pays no stated interest but will return RM2,000 at the end of 3 years. (i) (ii) What annual rate of return will Frodo earn with this investment? Frodo is considering another investment, of equal risk, that earns an annual return of 8%. Which investment should he make and why?
(b)
Samwise Gamgee was seriously injured in an industrial accident. He sued the responsible parties and was awarded a judgment of RM2,000,000. Today, he and his attorney are attending a settlement conference with the defendants. The defendants have made an initial offer of RM156,000 per year for 25 years. Samwise plans to counteroffer at RM255,000 per year for 25 years. Both the offer and the counteroffer have a present value of RM2,000,000. Assume both payments are at the end of each year. (i) (ii) (iii) What interest rate assumption have the defendants used in their offer (rounded to the nearest whole percent)? What interest rate assumption have Samwise and his lawyer used in their counteroffer (rounded to the nearest whole percent)? Samwise is willing to settle for an annuity that carries an interest rate assumption of 9%. What annual payment would be acceptable to him?
2.
Gandalf Enterprise must consider several investment projects, A through E using the capital asset pricing model (CAPM) and its graphical representation, the...

...
Study Guide for Final Exam – fin 301 (WC)
calculation of price of bonds
calculation of YTM for bonds
calculation of yield to call for bonds
calculation of current yield/capital gains yield for bonds
calculation of coupon interest rate/PMT for bonds
effect of change in interest rates on price of bonds
Bond sensitivities/Bond theorems
calculation of capital gains yield
calculation of expected total return using expected dividends, stock price and growth rate
calculation of stock price using expected total return, expected dividends/current dividends, and growth rate
calculation of growth rate using stock price, expected total return, expected dividends/current dividends.
calculation of expected stock price using expected total return, expected dividends/current dividends, and growth rate
calculation of expected dividends using stock price expected total return, and growth rate
calculation of preferred stock price, rate of return for preferred stock given other variables (including flotation cost)
calculation of cost of equity from retained earnings using CAPM APPROACH
calculation of weighted average cost of capital (WACC)
calculation of component cost of debt in WACC
calculation of cost of equity from retained earnings using dcf apporach
calculation of cost of equity by selling new common stock using dcf apporach
Calculation of NPV, IRR, MIRR, and Payback period
selection of mutually exclusive/independent...

...economic risk+operational risk = business risk + financial risk = total firm’s risk
EVA = EBIT – TAX = the aftertax operating profit (sometimes referred to as net operating profit after taxes or NOPAT)
* Less the dollar cost of the capital employed to finance these assets = COST OF CAPITAL
Invested Capital =
Cash +
Net fixed assets +
WCR (investment the firm must make to support its operating cycle is the sum of its inventories and accounts receivable minus its accounts payable)
WCR = (Accounts receivable + Inventories + Prepaid expenses) – (Accounts payable + Accrued expenses).
Cash-to-cash period = cash collected from customers – cash paid to suppliers
Matching strategy = match the lifetime of an asset with its financing source
WCR is mainly a lt investment as it remains on the BS indefinitely- permanent part to be financed with LT finance, and seasonal part with ST finance
Liquidity issues arising from matching issues – the higher the proportion of WCR financed with LTF, the higher the liquidity
Net long-term financing (NLF) = Long-term debt + Owners’ equity – Net fixed assets
Net short-term financing (NSF) = Short-term debt – Cash
Net long-term financing working capital requirement
Percentage of working capital financed long term
* Liquidity position will improve if:
* Long-term financing increases, and/or
* Net fixed assets decrease, and/or
* WCR...