9 Calculating WACC Mullineaux Corporation has a target capital structure of 60 percent common stock‚ 5 percent preferred stock‚ and a 35 percent debt. Its cost of equity is 12.5 percent‚ the cost of preferred stock is 5.5 percent‚ and the cost of debt is 7.2 percent. The relevant tax rate is 35 percent. a. What is 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
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at 4.5% * JP Morgan has issued an estimate for Expected Market Return at 8.5% * Euribor is 2% * Before tax cost of debt = 5% * Tax rate = 30% Please calculate the weighted average cost of capital (WACC) for this firm. 2. You are now asked to calculate the WACC for a toothpaste manufacturer with the following data: * Average share price for last 6 months = €34/ share * Current year’s dividend = €3/ share * Applicable growth rate = 3% * Tax rate =
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2. What is the maximum price they could expect to pay Monmouth‚ based on an analysis of valuation using discounted cash flow‚ calculation of WACC and terminal value determination? 2. Based on the DCF valuation and using a WACC of 8.25% (the beta assumed to be 1‚ the average beta of comparable firms and the coupon rate to be 7.96%‚ the rate for BB rated companies) and a growth rate of 5.5%. The fair price is $40.4 per share for Robertson‚ lower than the $50 offered by Simmons to sell their
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In late 2003‚ the company of Boeing was the worst of its life. However‚ it was changed some market demand and solved the technology issues‚ then slowing to improve. According to the case study (Boeing)‚ the six-box organisational model provides a framework that succinctly identifies the key factors at the centre of the Boeing situation. 1. Strategy – was to update their technology systems‚ downsize their operations‚ and re-establish relationships with their suppliers and the only feasible way
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CAPITAL BUDGETING Cost of Capital Evaluating Cash Flows Payback‚ discounted payback NPV IRR‚ MIRR The Cost of Capital • Cost of Capital Components – Debt – Common Equity • WACC Should we focus on historical (embedded) costs or new (marginal) costs? The cost of capital is used primarily to make decisions which involve raising and investing new capital. So‚ we should focus on marginal costs. What types of long-term capital do organizations use? nLong-term debt nEquity Weighted
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Why did Boeing adopt the radical change approach for designing and developing the 787 Dreamliner? What were the risks? In your opinion‚ was it a good move? Defend your choice. Boeing adopted the radical change approach for designing and developing the 787 Dreamliner because they were in competition with Airbus and needed a new approach in which they could use innovation to stand out upon their competitiors. Boeing was looking to reduce manufacturing costs and development times. Boeing took an
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The BOEING 777 CASE SUMMARY In October 1990 Boeing officially announced the launch of the latest addition to the Boeing family: The Boeing 777. The Boeing 777 is a long range‚ wide-body‚ twin jet engine jet. In this case study we are trying to evaluate the 777 project. This project seems a bit risky since R&D and design expense are very high for this project and the invasion of Kuwait by Iraq has increased the oil prices. 1. We know that there are two ways to increase return on equity RoE
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In early 2003‚ Boeing released plans to build a new “super efficient” jet called the 7E7. The jet subsequently gained the nickname the “Dreamliner.” In the six months following the announcement news depressed the market for aircraft‚ which was already shrinking. This news included the United States going to war with Iraq‚ global terrorist attacks‚ and SARS putting travelers in fear. This all contributed to the worst airline profits in a generation. From Boeing’s perspective this meant for a
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as the discount rate in net present value (NPV) project appraisal techniques.1 The weighted-average cost of capital (WACC) represents the overall cost of capital for a company‚ including the costs of equity and cost of debt‚ weighted according to the proportion of each source of finance within the business. In easy words WACC measures a company’s cost to borrow money. The WACC equation is the cost of each capital component multiplied by its proportional weight and then summing: Where: Re
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Managing for Change 11/10/14 Midterm Exam : Case Study about Boeing. Questions: 1. I think that there are two diagnostic models that provide a framework that succinctly identifies the key factors at the center of the Boeing situation : the 7-S framework model and the Six-Box organizational model . Based on these two models‚ we can more easily assess the internal situation of a company. First of all the 7-S model is based on seven major elements such as: Strategy‚ Structure‚ Systems‚ Style‚ Staff
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