The Cost of Capital 1 Background As investors desire to obtain the best/highest return on their investments in securities such as shares (Equity) and loans to companies such as debentures (Debt)‚ these returns are costs to the companies paying these Dividends (on equity) and Interest (on Debts)! It all depends on the perspective from which we chose to view the calculation (are we Earning or Paying?) Companies MUST consider the cost of financing they receive in the form of equity or debt if they
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International Capital Structure and the Cost of Capital Agenda 1 2 3 4 5 International Capital Structure and the Cost of Capital Analyzing Cost of Capital among Countries Cross Border Listing of Stocks International Asset Pricing Model (IAPM) The Financial Structure of Subsidiaries Case Analysis - AES Corporation 6 International Capital Structure and the Cost of Capital Your Logo International Capital Structure and the Cost of Capital • Firms are becoming multinational in
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* Explain how Dell’s working capital policy is a competitive advantage for the company? Dell uses a just in time order fulfillment policy and accurate forecasting of sales to minimize inventories. This allowed Dell to hold inventory of finished products far below levels of their competitors (10-20% compared to 50-70% industry level) and furthermore allowed them to quickly implement changes to their product lines as new technologies became available. This quick inventory turnover also allowed Dell
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Solutions to Chapter 12 The Cost of Capital 1. The yield to maturity for the bonds (since maturity is now 19 years) is the interest rate (r) that is the solution to the following equation: [$80 annuity factor(r‚ 19 years)] + [$1‚000/(1 + r)19] = $1‚050 Using a financial calculator‚ enter: n = 19‚ FV = 1000‚ PV = (-)1050‚ PMT = 90‚ and then compute i = 7.50% Therefore‚ the after-tax cost of debt is: 7.50% (1 – 0.35) = 4.88% 2. r = DIV/P0 = $4/$40 = 0.10 = 10% 3. = [0.3 7.50% (1
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FINAN 6121 – Corporate Finance Cost of Capital – The Walt Disney Company Team Titans B (Doug Horne‚ Shaun Hoggan‚ James Thackeray‚ Jeff Burg) The purpose of this project is to determine the weighted-average cost of capital (WACC) for The Walt Disney Company. According to The Walt Disney Company’s Form 10-K filing for the fiscal year ended September 29‚ 2012‚ “The Walt Disney Company‚ together with its subsidiaries‚ is a diversified worldwide entertainment company with operations in five business
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UV0010 NIKE‚ INC.: COST OF CAPITAL On July 5‚ 2001‚ Kimi Ford‚ a portfolio manager at NorthPoint Group‚ a mutual-fund management firm‚ pored over analysts’ write-ups of Nike‚ Inc.‚ the athletic-shoe manufacturer. Nike’s share price had declined significantly from the beginning of the year. Ford was considering buying some shares for the fund she managed‚ the NorthPoint Large-Cap Fund‚ which invested mostly in Fortune 500 companies‚ with an emphasis on value investing. Its top holdings included ExxonMobil
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brokerage sector. In march 1997‚ Ameritrade raised $22.5 million in an initial public offering. Management at Ameritrade is considering substantial investments in technology and advertising‚ but is unsure of the appropriate cost of capital. Estimating the cost of capital 1. Since we do not have the beta for Ameritrade‚ we need to find comparable firms for which we could compute the betas. There are several candidates in the case. Discuss which firms are most appropriate. Thus‚ the proportion
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Finance 5204 Managing Corporate Capital Investment and Capital Structure Case1 Cost of Capital at Ameritrade By: Elaine Huang Jonathan Hudson Christopher Lenker AMERITRADE DOES NOT HAVE A BETA ESTIMATE AS THE FIRM HAS BEEN PUBLICLY TRADED FOR ONLY A SHORT TIME PERIOD. EXHIBIT 4 PROVIDES VARIOUS CHOICES OF COMPARABLE FIRMS. WHAT COMPARABLE FIRMS DO YOU RECOMMEND AS THE APPROPRIATE BENCHMARKS FOR EVALUATING THE RISK OF AMERITRADE’S PLANNED INVESTMENTS? WHY? We recommend using the following
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Marriott cost of capital Objective: 1) Calculate the divisional and the company cost of capital and explain the calculation. 2) Evaluate Marriott’s use of company cost-of-capital rate for the individual divisions. Cost of Capital for Lodging Division can be expressed as CC = We*Ce + Wd*Cd. For the weights of debt and equity (We and Wd)‚ the 1988 target-schedule rates of debt-to-assets and debt-to-equity were used as the only measures available in the case. Cost of Equity
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Cost of Capital at Ameritrade What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? Mr. Ricketts believes that his role as CEO is to maximize shareholder value by accepting any project whose expected return on investment is greater than the cost of capital. Therefore‚ the main factors that Ameritrade management should consider are the expected return on investment for the project‚ and how this compares to the project’s
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