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
Premium Finance Weighted average cost of capital Stock market
Multinational Cost of Capital Capital Structure‚ Risk and the Cost of Capital for Multinational Companies (1713 words) 2015 Table of Contents Introduction 2 Literature Review 2 Capital Structure‚ Risk and the Cost of Capital for Multinational Companies 2 Criticism to the work and the upstream-downstream hypothesis 2 Conclusion 2 References 2 Introduction “Theoretically‚ MNEs should be in a better position than their domestic counterparts to support higher debt ratios because their cash flows
Premium Multinational corporation Corporation Globalization
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
Premium Investment Stock market Stock
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
Premium Stock Finance Net present value
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
Premium The Walt Disney Company Walt Disney Burbank, California
Group Case 1: Ameritrade – Cost of Capital Executive Summary: As a deep-discount brokerage‚ Ameritrade planned to improve its competitive position by price cutting‚ technology enhancements‚ and increased advertising in mid-1997. Before initiating the plan‚ Ameritrade needed know whether the investment returned more than it cost. We were hired to estimate the cost of capital correctly. The key question is to find suitable comparable firms to estimate Ameritrade’s asset beta‚ since it was a recently-listed
Premium Rate of return Investment
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
Premium Finance Stock Market capitalization
LECTURE 10 COST OF CAPITAL CLASS QUESTIONS 1. Roland Corporation’s last dividend (D0)‚ which was paid yesterday‚ was $2.50. The firm has a constant growth of 18.8%. The firm’s beta coefficient is 1.2. The required return on an average stock in the market is 13 percent‚ and the risk-free rate is 7 percent. Roland’s A-rated bonds are yielding 10 percent‚ its risk premium is 4% and its current stock price is $30. Which of the following values is the most reasonable estimate of Roland’s cost of retained
Premium Dividend yield Weighted average cost of capital Stock
Ameritrade’s managers should also consider what taking on these programs would do to its capital structure. They might have a certain debt to equity ratio they wish to maintain‚ or perhaps there would be covenants put on their contracts requiring them to maintain a certain debt to equity ratio while their loan was outstanding. Ameritrade should use a 6.10% risk free rate when calculating its cost of capital. This is the average of the 20 year bond annualized yield to maturity (on August 31‚ 1997)
Premium Weighted average cost of capital Investment Finance
Telus: The Cost of Capital Telus needs to calculate the cost of capital from the variety of data given. The cost of capital is determined mostly by how the funds are used rather than where they were obtained from. It relies on the risk of investments Telus involves in‚ therefore‚ depending on cost of both equity of debt as described below. Also note that‚ even though the preferred shares are not attractive to issuers and may not get issued again‚ it is still on the company’s balance sheet and affect
Premium Net present value Stock Stock market