WACC Essay

RUNNING HEADER: MINI CASE 1: COMPUTRON INDUSTRIES Mini Case 1: Computron Industries Stephanie Walker Averett University Dr. Jeffrey Woo BSA554-M724-SU16 Comprehensive Financial Management May 2016 Mini Case 1: Computron Industries In 2012, Computron Industries, a manufacturer of electronic calculators, has been going through some expansion and growth. Some factors of this growth have include new sales offices, doubling of plant faculties and an expensive advertising campaign.…

WACC gives the cost of this capital raised by putting appropriate weights on the cost of equity and the cost of debt R_E=R_f+〖(R〗_m-R_f)*β_M R_f=risk free rate (govt. security bonds) R_m-R_f=risk premium β_M=systematic risk (regression of stock returns of company on market return) The cost of equity is calculated via capital asset pricing model. Cost of debt is calculated by taking the interest rate for the year 2013 as Interest/EBIT. WACC based on book value is…

Gopal Hariyani PRN: 20 Project and Infrastructure Finance Project Report On Sports Equipment Manufacturing Unit Project Identification: Generation of Ideas 1. SWOT Analysis Strength: 1. A New Unit – Starting from the scratch, will enable us to install the latest and the most upgraded machines, though it is a labour intensive project during the beginning period. Installing the latest machinery will drive the per-unit cost and other overhead expenses down to the minimum and…

of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk. H. How do free cash flow and the weighted average cost of capital interact to determine a firm’s…

Corporate Level Strategy and Business-Level Strategy, Tesla Motors is a company that has known how to well penetrate in the car industry and in the market. According to Liu, Kang, Wu, Chen & Hon “Tesla is pursuing market penetration strategy and related constrained. Tesla intends to enhance their influence on the current markets with their current products. They also market their electric powertrain components to other automakers (2014).” Tesla is really focusing on working on market penetration…

QUESTION 1: VALUATION OF SHARES 1. ROE= 25% Dividends Paid = DPS/EPS (54000/50000)/4.32 1.08/4.32 0.25 25% Share price for Ragan is $27.36 2. Growth for 5years = 18.75% Growth after 5 years = 15% Dividends D(0)=1.08 D(1)=1.08 X 1.1875=1.2825 D(2)=1.2825 X 1.1875=1.52296 D(3)=1.52296 X 1.1875=1.8085 D(4)=1.8085 X 1.1875=2.1476 D(5)=2.1476 X 1.1875=2.5503 D(6)=2.5503 X 1.15=2.9328 Terminal Value = 2.9328/0.15 X 0.20 = $41.4 Share Price = D1/(1+r) + D2(1+r)^2 +D3(1+r)^3 +…

Treasuries and yield dollar denominated foreign government bonds. The end result is a DCF value denominated in U.S. dollars. * 2. The second approach is to discount foreign cash flows using a foreign WACC, and then translate the foreign DCF into a dollar DCF using the spot exchange rate. However, a major drawback to this method is that betas are not estimated for many stocks in emerging markets, so often the only way to estimate Beta accurately is…

Goodwill is explained as the ‘future economic benefits arising from other assets acquired in a business combination or acquisition that are not individually identified and separately recognised’ in AASB 3 Appendix A. Physical asset including buildings or equipment cannot be considered as goodwill, it should be an intangible asset that has no physical substance. And a business combination itself means ‘a transaction or other event in which an acquirer obtains control of one or more business’. On…

Executive summary California Plant Protection (CPP) is a medium sized security firm, which is considering expanding their business by buying a larger firm named Pinkerton. The first bid was $85 million but this was rejected, and CPP was informed that any bids under $100 million would face the same result. The key questions we have addressed are whether a $100 million bid for Pinkerton can be justified and if so, how the acquisition should be financed. We find the value of Pinkerton for CPP…

return of 30% - 70% to discount the future cash flow. It is vary on nature of business and the probability of failure. The higher rate reduced the value of the new firm. Unlikely, DCF used lower discount rate such as cost of equity, cost of debt and WACC for discounting the future cash flows. That gives the higher value to firm and higher return to share holder. c) Cash Flows: VC method ignores the cash flows for discounting the projected cash flows whether DCF taking accounts for all future…