Return Vs. Required Return 21 Portfolio Planning 21 Dividend growth model 24 Corporate Valuation Model 24 Constant & non-constant growth of dividend 27 Actual prices Vs. Expected Prices 27 Weighted average cost of capital (WACC) 28 Trend of financial statements in last five years 30 Acknowledgement First of all we all are thankful to one and only the Almighty Allah for always guiding us in the thick and thin and giving us strengths and courage to complete this
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Assessment: Lite orange juice Project 1. Define the term “incremental cash flow”. Since the project will be financed in part by debt‚ should the cash flow analysis include the interest expense? Incremental cash flow is the additional operating cash flow that an organization receives from taking on a new project. A positive incremental cash flow means that the company ’s cash flow will increase with the acceptance of the project. Cash flow analysis should not include the interest expense. We
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Original value of the firm: V= D + S = 0 + ($15)(200‚000) = $3‚000‚000 Original cost of capital: WACC = wd(1-T)rd + wsrs = 0 + (1.0)(10%) = 10% With financial leverage (wd = 30%): WACC = wd(1-T)rd + wsrs = (0.3)(7%)(1-0.40) + (0.70)(11%) = 8.96% Since the growth is zero‚ the value of the company is: V= FCF/WACC = [EBIT)(1-T)]/WACC = [($500‚000)(1-0.4)]/(0.0896) = $3‚348‚214 Therefore‚ increasing the financial leverage by adding $900‚000
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2) How does Debt add value at CPK? (values in thousands) - Do Nothing: ROE‚ WACC ROE: NI/BVofE (20299/225888)= 8.99% ROE: NI/MVofE (20299/643773)= 3.15% WACC: 9.52% COE: .85(10.3-5.1)+5.1=9.52% - Add $45‚177‚600 in Debt (20% Debt/Total Book Capital): New ROE‚ Present Value of Tax Shields‚ # shares outstanding after repurchase‚ Expected Post-Issuance Stock Price‚ BetaLev‚ REquity‚ and new WACC. (Note: Use Rf of 10 yr. UST Note‚ and an expected Rm=10.3%. Also‚ assume
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Vidyasagar University Journal of Commerce Vol.11‚ March 2006 EVA BASED PERFORMANCE MEASUREMENT: A CASE STUDY OF DABUR INDIA LIMITED Debdas Rakshit* ABSTRACT Traditional measures of corporate performance are many in number. Measures using common bases are Net Profit Margin‚ Operating Profit Margin‚ Return on Investment (ROI)‚ Return on Net Worth (RONW)‚ Earning Per Share (EPS) etc. Among these‚ again ROI is recognized as the most popular yardstick of overall performance. But it is often argued that
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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 for the company‚ Tesca‚ to know this?) 3. Each
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following issues must be considered: Valuation of cash flows in the relevant period Estimating terminal value A. Procedure 1. The cash flows (without synergy) were taken as provided for 5 years along with adjustment for Net working capital changes. 2. WACC was calculated for various D/V ratios 3. Terminal Value of the firm was determined using P/E Multiple of 19.1 4. Valuation done for the cash flows and terminal value at a discount rate corresponding to industry average D/V Ratio 5. APV determined using
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Bond P is a premium bond with a 12 percent coupon. Bond D is a 6 percent coupon bond currently selling at a discount. Both bonds make annual payments‚ have a YTM of 9 percent‚ and have five years to maturity. The current yield for Bonds P and D is percent and percent‚ respectively. (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g.‚ 32.16)) | If interest rates remain unchanged‚ the expected capital gains yield over the next year for Bonds P and D is percent
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rankings are reflected with each of the six (6) quantitative ranking calculations below; however‚ if asked to select just one of the rankings‚ then NPV would be selected. That being said‚ the top four projects in the NPV ranking (assuming a 10% WACC) are: Project 3‚ Project 4‚ Project 8‚ and Project 5. Although Project 7’s NPV is higher than Project 5‚ it is not listed because it is mutually exclusive with Project 8 and they cannot be ranked together. More of these calculations are outlined
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The Cost of Capital for Goff Computer‚ Inc. Rahul Parikh BUS650: Managerial Finance (MAH1209A) Dr Charles Smith March 18‚ 2012. The Cost of Capital for Goff Computer‚ Inc.: 1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year‚ respectively. These corporate fillings are available on the SEC Web site at www.sec.gov. Go to the SEC Web site‚ follow the “Search for
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