WACC:
Weighted average cost of capital =WACC= SS+B×Rs+BS+B×RB×1-tC note: Rs , cost of equity; RB , cost of debt; tC , corporate tax rate. For cost of equity, Rs, we calculate it by using the SML, according to CAPM model. Rs=RF+β×[RM-RF]

As we can see in the chart behind the case, beta of Worldwide Paper Company is 1.10; the Market risk premium (RM-RF) is 6.0%. Because this on-site longwood woodyard project has six year life and the investment spend over two years, the total long of this program is more closer to 10-years, we choose the 10-year government bonds as risk free rate, 4.60%. Thus, Rs=4.60%+1.10×6.0% =11.20%.

For the cost of debt, there are two kinds of debts of Worldwide Paper Company, bank loan and long-term debt. The cost of long-term debt is 5.78% (A rating 10-years maturities corporate bonds) , and the value of long term debt is $2500M. Thus, RB=5.78%.

For the value of equity and debt, market value weights are more appropriate than book value weights, because the market values of the securities are closer to the actual dollars that would be received from their sale. There are the market weights expected to prevail over the life of the firm or the project. S=500×$24.00=$12,000M; B=$2500

...estimate the WeightedAverageCost of Capital (WACC) for both its Telecommunications segment and its Products and Systems segment and then compare that to the firms corporate WACC. The WACC assesses the amount the risk that an averagecapital project undertaken by the firm contains. It is also the required rate of return the firm must end up paying in order to later generate funds, which can then be used as a benchmark to determine how profitable an investment is or may be.
In order to begin calculating WACC we first must calculate the cost of equity for each segment. By comparing Teletech to that of other publically traded companies in the same industry we determined that a beta of 1.04 was appropriate for the Telecommunications segment, and a beta or 1.36 for the Products and Systems segment. Using the CAPM approach, we took the segments betas as well as our calculated market risk premium of 5.5% (See section 1 of Calculations) and were able to determine the cost of equity for the Telecommunications segment to be 10.34% and the Products and Systems segment to be 12.1%.
Continuing further we applied each segments after-tax cost of debt along with the firm's percentage weights of debt and equity, 22.2% and 77.8% respectively and were able to determine that the Telecommunications segment had a WACC of 8.8% while the Products and Systems segment had...

...WEIGHTEDAVERAGECOST OF CAPITAL FOR DELL COMPUTER
1) From the SEC website, the balance sheet of Dell Computer reveals a
Book value of debt = $3,394,000,000 and
Book value of equity = $4,625,000,000
The same balance shows the breakdown of the long-term debt (book values) in table 1.
Table 1
Coupon Rate
(%) Maturity Book Value
(Face Value in million $)
3.38 06/15/2012 400
4.70 04/15/2013 599
5.63 04/15/2014 500
5.65 04/15/2018 499
5.88 06/15/2019 600
7.10 04/15/2028 396
6.50 04/15/2038 400
2) From finance.yahoo.com,
• The most recent (Oct 30 2009) stock price (Po) = $14.45
• Market value of equity or market capitalisation = $28,260,000000
• Shares outstanding (28,260,000,000/14.45) = 1,955,709,343
• No dividend is paid recently. In this case, the dividend discount model cannot be used
• The three-month treasury bill yield = 0.03%
Cost of Equity
Risk free rate (Rf)= 0.03%
Systematic risk of Equity (Beta, BE) = 1.36
Assuming market risk premium = 8.6%
Using the Capital Asset Pricing Model (CAPM),
Cost of equity (RE) = Rf + BE(RM - Rf)
Where,
RM is expected return on the overall market
(RM - Rf) is the market risk premium
Cost of equity (RE) = 0.0003 + 0.086 x 1.36
= 0.1173 = 11.73%
Therefore, the cost of equity is 11.73%
3) Cost of Debt...

...Cost of Capital
Definition: cost of capital is the rate of return that a company must earn on its project investments to maintain its market value and attract funds. The cost of capital to a company is the minimum rate of return that is must earn on its investments in order to satisfy the various categories of investors, who have made investments in the form of shares , debentures and loans. Thecost of capital in operational terms refers to the discount rate that would be used in determining the present value of the estimated future cash proceeds and eventually deciding whether the project is worth undertaking or not. It is defined as "the minimum rate of return" that a firm must earn on its investment for the market value of the firm to remain unchanged.
Basic Aspects of concept of Cost of capital :
here are three basic aspects of concept of cost. They are:
* It is not a cost as such.
* It is the minimum rate of return.
* It comprises the following 3 components:
* Return at Zero risk level – This refers to the expected rate of return when a project involves no risk whether business or financial.
* Premium for business risk – The term business risk refers to the variability in operating profit due to change in sales. The concept is...

...Cost of Capital
Firms need to make capital investment i.e., purchasing fixed assets such as factories, machineries, equipment, etc. After deciding what capital investments to make, they need to decide on the financing – sources of capital. The sources: Long-Term Debt, Common Stock, Preferred Stock and Retained Earnings. Then they need to find the cost of obtaining each source of financing today (not historical).
Cost of Capital - The rate of return that a firm must earn on its investment projects to maintain its market value and attract funds. It depends on the risk of that investment (use of funds, not source of funds)
1. Cost of Debt (rd) – we use Bonds to represent the cost of long-term debt. Its required rate of return is the yield-to-maturity (YTM) of the bond. After we calculate the rd, we need to find the after-tax cost of debt : rd (after-tax) = rd(1 –T). In finding the YTM, we need to have the bond’s current price. If there is a flotation costs involved in issuing the bond, we need to deduct these costs first to find the net price of the bonds.
(Example: A company wants to sell $10 million worth of 20-year, 9% coupon bonds with a par value of $1,000 each. The firm must sell the bonds for $980 to reflect the market price of other similar bonds. The flotation...

...The Cost of Capital for Goff Computer, Inc.
Rahul Parikh
BUS650: Managerial Finance (MAH1209A)
Dr Charles Smith
March 18, 2012.
The Cost of Capital for Goff Computer, Inc.:
1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate fillings are available on the SEC Web site at www.sec.gov. Go to the SEC Web site, follow the “Search for Company Filings” link, the “Companies & Other Filers” link, enter “Dell Computer,” and search for SEC filings made by Dell. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity. If you look further down the report, you should find a section titled either “Long-term Debt” or “Long –term Debt and Interest Rate Risk Management” that will list a breakdown of Dell’s long-term debt.
Answer:
The book value of a company's equity is the same as stockholder's equity, which can be computed by subtracting the total value of liabilities from total assets.
(Total Assets) = (Total) Liabilities + Stockholder's Equity (book value of equity).
Stockholder's Equity (book value of equity) = Total Assets –Total Liabilities.
The book value of the company’s liabilities and equity was found from the site http://www.sec.gov . I found Dell’s...

...FINANCIAL ARCHITECTURE
The problems to estimate the cost of capital
Before starting to describe the problems associated to the estimation of the cost of
capital, it is extremely relevant to describe its meaning: according to Investopedia, it is “the
cost of funds used for financing a business”. In order to carry out this process, the companies
can only be financed through equity; only through debt; or using a “combination of debt and
equity” - in this particular case it is a “overall cost of capital derived from a weightedaverage of
all capital sources, widely known as the weightedaveragecost of capital (WACC) (...)”
(Investopedia, 2013). The estimation of the cost of capital depends on several factors, such as
the “operating history, profitability, credit worthiness, etc.”. It means, of course, the most recent
companies will face higher costs of capital because their risk is higher when compared to solid
companies (Investopedia, 2013).
It is now important to describe a few and the most important problems regarding the
estimation of the cost of capital:
(i) Assumptions about the costs of equity and debt: these assumptions deeply affect
“the type and the value of...

...1. WeightedAverageCost of Capital (WACC) is used to determine the averagecost of financing a company. Companies are funded using both debt and equity and both require varying rates of return. WACC allows you to put a “weight” on the different types of financing and their differing rates to get a total cost of capital.
Team 12 does not agree with Joanna Cohen’s WACC calculation because we feel she took some liberties in her numbers, the most notable being that of equity. Ms. Cohen used book equity, which was $3,494,500,000. Since Nike is a publicly traded company, the stock price should be multiplied by the number of shares outstanding in order to get the true equity of the firm. 271,500,000 multiplied by $42.09, would give you $11,427,435,000 in equity.
In Ms. Cohen’s calculation debt was 27% of total financing and equity was 73%. When using market value for equity those numbers change to 10.2% for debt and 89.8% for equity.
2. Using the following numbers and inputs, our WACC is 9.53%:
To calculate the cost of debt the yield of Nike’s publicly traded debt is utilized:
● N = 40 (semi-annual coupon, 2 x 20)
● PV = $95.60
● PMT = 3.375 (semi-annual coupon, half of 6.75)
● FV = 100 (Amount of debt in future)
Inserting the numbers above in our calculations result in 3.583724 for the I/YR which is multiplied by...

...1.
Marriott uses its' cost of capital estimates to create a hurdle rate to effectively run operations. Marriott uses these estimates to operate its four financial strategies. These are managing rather then owning hotel assets, investing in projects that increase shareholder value, optimizing the use of debt in the capital structure and repurchasing undervalued shares. 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 WeightedAverageCost 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 8.72% reflecting the interest rate on 10 year government bonds. A risk premium of 7.76% or the average returns of arithmetic averages of all long term, high grade corporate bonds was used for the WACC. To unlever the equity beta of 1.11 for Marriott the current debt percentage of 41% was used as shown in their capital structure. The relevered beta was calculated using 60% debt from the target capital structure. Cost of debt was...

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