The discount rate Main article: Discount rate The rate used to discount future cash flows to their present values is a key variable of this process. A firm’s weighted average cost of capital (after tax) is often used‚ but many people believe that it is appropriate to use higher discount rates to adjust for risk or other factors. A variable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield curve premium for long-term
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$42 per share. Assume the expected rate of return on Federated’s stock is 18 percent. • Taxes: Federated’s marginal tax rate is Tc = .35 What are the key assumptions underlying your calculation? For what type of project would Federated’s weighted-average cost of capital be the right discount rate? 2. Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later its debt ratio is down to 15 percent (D/V =.15 ). The interest rate has dropped to 8.6 percent. Recalculate
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Federal Reserves’ discount rate‚ monetary policy‚ and stimulus program through the money multiplier. What are the factors that would influence the Federal Reserve in adjusting the discount rate? According to Chron if prices rise too fast or the economy starts slowing down‚ the Federal Reserve uses the discount rate as a way of manipulating interest rates to stabilize the economy. This change can either increase or decrease how much you ’ll pay to borrow money. How does the discount rate affect the
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THE DIRECT D E T E R M I N A T I O N of RISK-ADJUSTED DISCOUNT RATES and LIABILITY BETA RUSSELL E. BINGHAM T H E H A R T F O R D FINANCIAL SERVICES G R O U P Table of Contents Page 2 3 5 7 8 11 12 13 14 14 15 16 17 17 18 Subject Abstract 1. Summary 2. Total Return Model 3. After-Tax Discounting 4. Derivation of Risk-Adjusted Discount Rate and Liability Beta Figure l : Baseline Risk / Return Line vs Leverage 5. Liability Beta Figure 2: Equity vs Liability Beta Figure 3: Equity Beta vs
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cash flows are uniform The cost of a proposal is $ 10‚000. The cash flows are as follows: Year Cash flows 1 2500 2 2500 3 2500 4 2500 5 2500 6 2500 Calculate Pay Back Period (PBP) When the cash flows are not uniform 1. There are two Proposals. Proposal A and Proposal B. Both cost the amount of $ 60‚000. The discount rate is 10%. The cash flows before depreciation and tax are as follows: Year Proposal A Proposal B $ $ 0 (60‚000)
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____________________________________________________________ _______________ 1. What is the net present value of a project with the following cash flows if the discount rate is 14 percent? [pic] A. -$3‚140.43 B. -$929.90 C. $247.181 D. $1‚027.67 E. $1‚127.08 2. Timothy is considering an investment of $10‚000. This investment is supposedly going to provide him with cash inflows of $2‚500 in the first year and $6‚000 a year for the following 2 years. At a discount rate of zero percent this investment has a net present
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If Venerus implements the suggested methodology‚ what would be the range of discount rates that AES would use around the world? * 12% discount rate was used for all projects * Venerus felt that this model worked fairly well * In 1990s this model of capital budgeting was exported to projects overseas * model became increasingly strained with the expansions in Brazil and Argentina * because hedging key exposures such as regulatory or currency risk was not feasible
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Generally there is no direct liaison between the office of issue and the port of importation unless where there is need for clarification. 4.2.4.6 What documentation‚ if any‚ comes back to the issuing office after importation? No documentation is requested from the port of importation by the issuing office. 4.2.4.7 What are the available conditions regarding where the rebated goods are to be kept? At given address and removed to another address only after notifying the Commissioner as specified in
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1 - Energy Costs Find information on energy cost: Advantages (government websites) 2 - Cost of Equity‚ Appropriate Discount Rate (WACC) Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta) 2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate Discount Rate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity) 2. WACC (important – why is it important
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What Would You Do? Chapter 4 American Express Headquarters‚ New York‚ NY Headquarters‚ New York‚ New York.1 With medical costs rising 10 to 15 percent per year‚ one of the members of your Board of Directors mentioned that some companies are now refusing to hire smokers and that the board should discuss this option at the next month’s meeting. Nationwide‚ about 6‚000 companies refuse to hire smokers. Weyco‚ an employee benefits company in Okemos‚ Michigan‚ requires all applicants to take
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