Running head: GILLETTE CASE ANALYSIS Gillette Case Analysis Daniel J. Tirado Fontbonne University Professor Ed Scholl BUS 571 Section 020 March 5‚ 2015 Executive Summary The Gillette Company has been presented with a potential business opportunity to expand its offering with a new razor. Market research indicates that the new product will be well received and that it will obtain 10% market penetration. An initial pro forma modeled net cash flows of $22‚710‚427 over four years including
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(CAPM) 20 Expected Return Vs. Required Return 21 Portfolio Planning 21 Dividend growth model 24 Corporate Valuation Model 24 Constant & non-constant growth of dividend 27 Actual prices Vs. Expected Prices 27 Weighted average cost of capital (WACC) 28 Trend of financial statements in last five years 30 Acknowledgement First of all we all are thankful to one and only the Almighty Allah for always guiding us in the thick and thin and giving us strengths and
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Economic Value Added (EVA) 3. Risk‚ Return and the Cost of Capital Relationship between risk and return‚ Standard deviation of a portfolio‚ Efficient frontier‚ Market portfolio‚ CAPM. Beta -Practicalities of estimation‚ Asset betas. Weighted average cost of capital (WACC) 4. The Efficient Markets Hypothesis and Behavioural Finance Evolution of asset prices in an efficient market‚ Theoretical foundations and forms of EMH‚ Behavioural and empirical challenges to EMH‚ Some explanations
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Mullineaux’s WACC? b. The company president has approached you about Mullineax’s capital structure. He wants to know why the company doesn’t use more preferred stock financing‚ since its cost less than debt. What would you tell the president? Weighted average Cost of Capital = E/V * Cost of Equity + D/V * cost of debt * (1-tax rate) Answer A - Mullineaux’s WACC WACC = 60%*14 + 5%*6 + 35%*8*(1-0.35) WACC = 8.4% + 0.3% + 1.82% WACC = 10.52% Answer B Lets analyse to following situations
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The Cost of Capital Project: Internet Version {December 2009} By Wm R McDaniel‚ PhD Objective The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their company’s WACC as a starting datum to estimate the discount rate to use in the net present value analysis of new projects or of termination decisions. The student will later need to know the technique for application in some case
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a large company with a wide range of products. They are operating international and are known as a low cost producer. In chapter three we are discussing if the two strategies between those companies match together. First we calculated the weighted average cost of capital (WACC). It is based on the assumption of a stable debt/equity ratio. YVC’s has no outstanding debt. We first had to compute return on equity and return on debt. To calculate return on debt for TSE we have taken the rating of a
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other valuation methods. We believe that the good quality of data can guarantee the reliability of our valuation. Our valuation process includes the following six steps. 1. Decide the present value of unlevered free cash flows. 2. Evaluate the weighted average cost of capital. 3. Appraise the value of tax shields. 4. Access the terminal value. 5. Estimate the present value of non-operating assets. 6. Applying the illiquidity discount. 2. What discount rate should Ms. Zhang use for unlevered FCF for
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which project would be worth doing by determining if they will add value to Star. Thus‚ the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value‚ or by solving for the internal rate of return‚ we should be able to see which projects Star should undertake
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A firm’s current balance sheet is as follows: Assets $100 Debt $10 Equity $90 What is the firm’s weighted-average cost of capital at various combinations of debt and equity; given the following information? Show work Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0% 8% 12% ? 10% 8% 12% ? 20% 8% 12% ? 30% 8% 13% ? 40% 9% 14% ? 50% 10% 15% ? 60% 12% 16% ? WACC = W d * K d + W e * K e Debt/Assets
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Intel has very little debt in its capital structure and the cost of debt would have only a marginal effect on the overall cost of capital. The current capital structure of Intel is not optimal yet since optimal capital structure is making minimum weighted-average cost of capital. Portion of Equity and Debt: Long term debt = 363 = 363/4781 = 7.59% Common Equity =4418 = 4418/4781 = 92.4 % Cost of Capital: Cost of debt =interest expense/long term debt = 29% Cost of Equity
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