Determining the Cost of Capital Can One Size Fit All? 1. Why do you think Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. Larry wants to estimate the firm’s hurdle rate because it would provide him with a standard with which to measure feasibility of future investment proposal. The firm had thus far been using a ‘gut feel’ approach and although most of
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Solution to Case 04 Determining the Cost of Capital Can One Size Fit All? Questions: 1. Why do you think Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. Larry wants to estimate the firm’s hurdle rate because it would provide him with a yardstick with which to measure the feasibility of future investment proposals. The firm had thus far been using a ‘gut feel’ approach
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One Size Fits All… An Educational Approach One size fits all is a term that we have all heard in our society. This cliché has been applied to clothing‚ wrist watches‚ necklaces and bike helmets. This universal fit concept is‚ unfortunately‚ the thinking behind most public education today. As we know‚ one size fits all is anything but. Just as people are physically built differently‚ we all have diverse learning styles and capabilities. Public high schools in the United States are also built
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One Size Does Not Fit All In recent years‚ the trend of informality and casual dress in corporate America has gained popularity. The majority of employers and companies have shifted their dress codes from more traditional business attire (business suit and tie) to a “business casual” mode of dress. Recently‚ “a poll by the Society for Human Resources Management shows that 90% of U.S. office workers go to work in business casual clothes at least once per week.” (Norton 1) Under the impression
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The Oceanic Corporation (Determining the Cost of Capital) Larry Stone wants to estimate the firm’s hurdle rate because it is a benchmark for how well the company needs to do on a project in order to at least break even. The higher the hurdle rate‚ the riskier the project will have to be and the lower the hurdle rate is‚ the safer the project will be for a company. A company should strive for a financing mix that minimizes the hurdle rate and matches the assets being financed. If there
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Determining Sample Size In the business world‚ sample sizes are determined prior to data collection to ensure that the confidence interval is narrow enough to be useful in making decisions. Determining the proper sample size is a complicated procedure‚ subject to the constraints of budget‚ time‚ and the amount of acceptable sampling error. If you want to estimate the mean dollar amount of the sales invoices‚ you must determine in advance how large a sampling error to allow in estimating the population
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condition of the mean between two things – surplus and deficit. Aristotle would argue for universal access to individually defined care‚ meaning universal access to different levels of health care to meet certain needs. Where Plato models the one-size-fits-all model of health care access‚ Aristotle understands the conditional value that differs from person to person. Finding balance would not mean taking advantage of the health care system without first making some contribution. In this stream of thought
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product lines‚ new equipment and other assets‚ managers must know the cost of obtaining funds to acquire these assets. The cost associated with different sources of funds is called the cost of capital. . If the business earns more than its cost of capital‚ the market value of the business will increase. Likewise‚ if returns on long-term investments are below the cost of capital‚ market values will decline. Therefore‚ how we manage capital is extremely important to fulfilling the basic objective of increased
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Chapter 8 The Cost of Capital 236 CHAPTER 8—THE COST OF CAPITAL TRUE/FALSE 1. Capital refers to items on the right-hand side of a firm’s balance sheet. 2. The component costs of capital are market-determined variables in as much as they are based on investors’ required returns. 3. The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt. 4. The cost of issuing preferred stock by a corporation must be adjusted to an after-tax
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What’s your real cost of capital? By James J. McNulty‚ Tony D. Yeh‚ William s. Schulze‚ and Michael H. Lubatkin Harvard Business Review‚ October 2002 Issue of the article: valuing investment projects Number of pages: 12 Daniel Miravet Campos Part 1. Executive summary This article is fundamentally based on the exposition of a new method to calculate the cost of capital for a company (MCPM)‚ to meet the inefficiencies of the current one (CAPM). In valuing any investment project or
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