to determine the weighted average cost of capital (WACC). This SLP calculates the WACC for my SLP company – McDonalds‚ discusses how those calculations were arrived at and briefly describes WACC and what investors use it for. COMPANY NAME: McDonalds Inc Balance sheet date: 31 DEC 07 Market values date: 1 SEP 08 SOURCE BOOK VALUE MARKET VALUE PROPORTIONS COST (%) PRODUCT (a) (b) (c) (d) (e)
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Case #3 “Marriott Corporation” The Cost of Capital” What is the weighted average cost of capital for the Marriott Corporation and cost of capital for each of its divisions? – What risk-free rate and risk premium did you use to calculate the cost of equity? – How did you measure the cost of debt? – How did you measure the beta for each division? Solution What risk-free rate and risk premium did you use to calculate the cost of equity? – Risk-free rate proxy The risk-free
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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
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To : President‚ Marriott Corporation From : FLO299 Subject : Marriott Corporation – The Cost of Capital Date : April 6‚ 2010 The Importance of the Cost of Capital The cost of capital is important as it forms the basis for Marriott’s investing and financial decisions. By understanding and knowing the cost of capital‚ Marriott is able to select relevant investment projects for the company‚ determine incentive compensation‚ and repurchase undervalued shares when needed. The returns
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order to completely analyze Nike and its possible place in the NorthPoint Large-Cap Fund‚ Ford needs to know Nike’s cost of capital. One of the most useful ways to measure the cost of capital is the weighted average cost of capital (WACC). Theoretically‚ the optimal capital structure in the mix of types of financing that produces the lowest WACC. WACC is calculated by multiplying the cost of each type of financing a company uses‚ be it debt or the many types of equity‚ by their respective weights. It
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Some problems with Taylor rules YUGUANG LIN 870311-T297 1 Taylor rule Interest rates‚ inflation rate and real output have always been important factors for the government and its central bank to reexamine the formulation of macroeconomic policy. Their intrinsic links are also concerned issues for the economic circles. People generally believe that monetary policy should respond in a manner that the adjustment of the interest rate could timely reflect the inflation and real output changes
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1. Which of the following would increase the likelihood that a company would increase its debt ratio in its capital structure? a. An increase in costs incurred when filing for bankruptcy. b. An increase in the corporate tax rate. c. An increase in the personal tax rate. d. None of the statements above is correct. ANSWER: B An increase in the corporate tax rate would mean that firms would get larger tax breaks for interest payments. Therefore‚ firms have an incentive to increase interest payments
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1. Weighted Average Cost of Capital (WACC) is used to determine the average cost 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
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Mini Cases: Cost of Capital Part A: Cost of Debt Mini Case 1: Cost of perpetual/Irredeemable debt Ashok Leyland issued Rs 100 Lakhs 12% debentures of Rs. 100 each. Calculate the cost of debt in each of the following cases. (Assume corporate tax rate being 40%). Case (a) If debentures are issued at par with no floatation cost. Case (b) If debentures are issued at par with 5% floatation cost. Case (c) If debentures are issued at 10% premium with 5% floatation cost. Case (d) If debentures are issued
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COST OF CAPITAL of HERO HONDA (WACC) Component | Amount | Cost | Weight | Weighted Cost | No debt: the amount given in bl sheet is a deferred sales tax | | | | | Equity | 39.94 | 20.68206 | 0.011526629 | 0.238394441 | Retained earnings | 3425.08 | 20.68206 | 0.988473371 | 20.44366632 | | | | | | Total Capital employed | 41209.34 | | | 20.68206076 | THE GORDON GROWTH MODEL The Gordon growth model‚ developed by Gordon and Shapiro‚ assumes that dividends grow
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