GSBA521B Term III‚ Fall 2012 Professor Ku Case—Blaine Kitchenware‚ Inc.: Capital Structure Assignment: Your team’s task is to recommend to the Board of Blaine Kitchenware (BKI) whether the firm should undertake the leveraged recap. In doing so‚ please address the four questions below. Teams 1-6: your task is to recommend for a leveraged recap with quantitative and qualitative support Teams 7-13: your task is to recommend against a leveraged recap with quantitative and qualitative support
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total cost of the operating capital. EVA is simply the after-tax operating profit minus the total annual cost of capital. Using EVA has advantages as well as disadvantages. Advantages · EVA sends the message than managers should invest only if the increase in earnings is enough to cover cost of capital · EVA allows a good way for companies to set a reward system that is not overly expensive to implement because is not too difficult for top management to monitor. · EVA makes the cost of capital
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project will solely be the present value of cash flow subtracts the cost of the project. In numerical term‚ the asking price of HK$ 1 billion dollar has a present value of HK$ 1.54 with a cost of HK$ 1.6 billion. This leads to a net present value of HK$ (60 million) dollar. This makes the project very unattractive. Therefore‚ different approach is used to examine whether or not the project is profitable. Weighted average cost of capital is used in the discounted cash flow method that shows the case
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estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? WACC is the weighted average cost of capital. It can be calculated as: WACC = (Weight of funding source 1) x (Cost of funding source 1) + … + (Weight of funding source n) x (Cost of funding source n) Usually this will be simply: WACC = (Percentage of debt) x (Cost of debt) + (Percentage of equity) x (Cost of equity) It is important to estimate a firm’s cost of capital for the appraisal
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stockholders. They planned to exchange each share of Nicholson common stock for one share of VLN preferred stock‚ worth a minimum of $53.10. After doing a discounted cash flow analysis‚ it was determined that Nicholson stock is undervalued. When the cost benefits are achieved the company is extremely undervalued. Therefore‚ Cooper could acquire Nicholson on friendly terms with a large premium to attract the majority of the shares needed. Cooper has never “made an ‘unfriendly’ acquisition and this
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restaurants. However‚ this is a complicated process because finding beta‚ cost of debt‚ and cost of equity in order to find weighted average cost of capital‚ or WACC‚ must be calculated using proxy firms and divisional data. The firm’s use of WACC is directed towards analysis of the company’s future capital investments. Specifically‚ firms use it as a discount rate in determining a projects profitability versus the cost of taking it on. A firm-wide WACC is a beneficial tool for determining whether
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1 The Value of Synergy Aswath Damodaran Stern School of Business October 2005 2 The Value of Synergy Many acquisitions and some large strategic investments are often justified with the argument that they will create synergy. In this paper‚ we consider the various sources of synergy and categorize them into operating and financial synergies. We then examine how best to value synergy in any investment and how sensitive this value is to different assumptions. We also look at how this synergy value
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hurdle rates were to be increased the companies growth will decrease. In vice versa if Marriott institutes lower hurdle rates the growth will increase. 2. Below is how we calculated the WACC for The Marriot. BL= 1.11 Cost of Debt (rD): 8.72 + 1.30= 10.02 CapM/Cost of Equity: rf + (mkt risk prem)BL .0872 + (.1201-.0458) 1.11 = .1697 or 16.97% WACC: (1-T) rD (D/V) + rE (E/V) (1-.44) .1002(.60/1) + .1697(.40/1) = .033667 + .067880 = .101547 or 10.15%
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Apple ’s financial performance continued to strengthen over the last several quarters. In the most recent earnings announcement‚ Apple reported significant growth in net revenues driven by the strong performance of its iPod product line. Net sales for the 2nd quarter grew to $4.36 billion‚ which is a 34% increase over 2nd quarter 2005 results. Net income increased by 41% to $410 million. (Apple Reports)The iPod product line continues to drive the financial performance of the company. In the 2nd quarter
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Bank Case Study 2011 Question (1): Capital Structure and Financing in the Banking Industry Introduction Australian banks are an interesting case of capital structure and financing considerations as far as companies go‚ in that they are regulated in a number of ways by the Australian Prudential Regulatory Authority (APRA) and the Reserve Bank of Australia (RBA). Considerations of capital structure have the effect of reducing the cost of capital and so in turn increase the value of the
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