Accounting rate of return, payback, and NPV Busy Beaver Corp. is interested in reviewing its methods of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $50,000 investment in a machine that had an estimated useful life of five years and an estimated salvage valu
Carter Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below: Work in process, beginning: Units in beginning work in process inventory 400 Materials costs $6,900 Conversion costs $2,500 Percent complete for m
What is the weighted average cost of capital if: Tax rate is 34% A company has 150,000 shares of common stock outstanding with a market price of $40 per share An annual dividend of $1.50 was paid last month Dividend growth rate is 5% There are 5,000 bonds outstanding with a $1000 face value per bond bonds have a 10%
In your own words identify and briefly describe at least 6 factors that a firm can and cannot control which affect the weighted average cost of capital.
Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected. Old WACC: 10.00% New WACC: 11.25% Year 0 1 2 3 Cash flows -$1,000 $410 $410 $410 a. -$18.89 b. -$19.88 c. -$20.93 d. -$22.03 e. -$23.13
Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC
Task: Describe how the WACC is currently calculated for PetSmart Inc. Is this the best approach to be using?
Suppose Lucent Tech. has an equity cost of 10 %, market capitalization of $10.8 billion, an enterprise value of $14.4 billion. Suppose Lucent debt cost of capital is 6% and its marginal tax rate is 35%. a) What is Lucent's WACC? b) Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the following expected free cash flows? Year 0 1 2 3 FCF -100 50 100 70 c) If Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? Question 9 Consider Lucent in the above problem 5 a) What is Lucent's unlevered cost of capital? b) What is the unlevered value of the project? c) What are the interest tax shields from the project? What is their present value? d) Show that the APV of Lucent's project matches the value computed using WACC method. Question 10 Consider Lucent in the above problem 5 . a) What is the free cash flow to equity for this project? b) What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method?
Question 5 Suppose Lucent Tech. has an equity cost of 10 %, market capitalization of $10.8 billion, an enterprise value of $14.4 billion. Suppose Lucent debt cost of capital is 6% and its marginal tax rate is 35%. a) What is Lucent's WACC? b) Lucent maintains a constant debt-equity ratio, what is the value of a projec
Kimbeth Manufacturing uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November 2008. (Adapted from June 1995 CMA Exam.) The beginning inventory was 60% complete as to materials and 20% complete
If costs increase from one period to another, will costs that are transferred out of one department under the first in first out (FIFO) method of costing be higher or lower than costs that are transferred out using weighted average method of costing? Why?
1. You borrow 1,000 today from a bank and agree to repay 2,000 at the end of 5 years. What rate of interest is the bank charging you? A. 12% B. 15% C. 18% D. 20% 2. What is the percent value of $1 million to be received at the end of year 50, if the interest rate is 12%, compounded annually? A. 3,460 B. 20,000 C. 34,0
Q1 Lydia wishes to invest $3000 in company A and $7000 in company B. She currently has only $5000 and will borrow the remaining amount to form her two-asset portfolio. If company A has a beta of 1.01 and company B has a beta of 1.37, what is the beta of her portfolio? Q2: RON Ltd has the following capital structure compo
1. Andyco, Inc., has the following balance sheet and an equity market-to-book ratio of 1.8. Assuming the market value of debt equals its book value, what weights should it use for its WACC calculation? Assets Liabilities and Equity $1,100 Debt $500 Equity $600 The weight for this debt is __________% round to two
Bayani Bakery's most recent FCF was $48 million; the FCF is expected to grow at a constant rate of 6%. The firm's WACC is 12% and it has 15 million shares of common stock outstanding. The firm has $30 million in short-term investments, which it plans to liquidate and distribute to common shareholders via a stock repurchase; t
Calculate the weighted average cost of capital (calculate using only pre-tax items). Also calculate the required return of common stock using Capital Asset Pricing Model. Debt: Market Rate: 9% % total capitalization: 55% Preferred Stock: 11% % total capitalization: 10% Common Stock: 17.50% % of total capitali
If a firm uses a single discount rate, their WACC, to compute the NPV of all capital projects, even though they have a wide range of non-diversifiable risk. The firm selects projects with positive NPV's. What would this policy do to the firm's risk over time?
Clearly chip has the capital structure given here. If Clearly Chip tax rate is 30%, what is its WACC? BOOK VALUE MARKET VALUE BEFORE TAX COST Bond $ 1,000 $ 1,000 8% Preferred stock 400 300
Question: Current projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2012 and the weighted average cost of capital is 11%. What is the horizon value at 2012? Free Cash Flow Actual Projected 2010 201
This question requires the calculation of the after-tax cost of debt, the cost of equity/capital using the capital asset pricing model (CAPM). The results of these calculations of the costs of the components of the company's capital structure are used along with their relative proportions to determine the weighted average cost o
After careful analysis, Dexter brothers has determined that its optimal capital structure is composed of the sources and target market value weights shown in the following table Source of capital Target market value weight Long term debt 30% preferred stock 15% common stock equity 55% Total 100% The cost
#1 Determine the weighted average cost of capital for a firm given the follow info below: Equity : $200,000 shares;stock price of $73 Beta of 1.54; risk free rate of 4%; risk premium of 6% Debt info: Book value of $3 million; interest expense of $278,000; average maturity of 13 years; Pre-tax cost of debt of 6.5%; tax rat
1. A firm has a capital structure containing 60 percent debt and 40 percent common stock equity. Its outstanding bonds offer investors a 6.5 percent yield to maturity. The risk-free rate currently equals 5 percent, and the expected risk premium on the market portfolio equals 6 percent. The firm's common stock beta is 1.20. a.
Mini Case: The balance sheet that follows indicates the capital structure for Nealon Inc. Flotation costs are (a) 15 percent of market value for a new bond issue, and (b) $2.01 per share for preferred stock. The dividends for common stock were $2.50 last year and are projected to have an annual growth rate of 6 percent
Currently, Bloom Flowers Inc. has a capital structure consisting of 20 percent debt and 80 percent equity. Bloom's debt currently has 8 percent yield to maturity. The risk free rate is 5 percent and the market risk premium is 6 percent. Using CAPM, Bloom estimates that its cost of equity is currently 12.5 percent. The company ha
18 - 4 Look again at table 18.11 at the end of fiscal 2008 Estee Lauder had 195 million shares outstanding with share price of $45.50. The company's weighted-average cost of capital was about 10%. Calculate a. Market value added b. Market to book ratio c. Economic value added d. Return on capital End of Year Start of Y
Need to calculate the cost of equity, wacc, and unleavered cost of equity for senior housing Properties trust. I have downloaded the financial statements for this company. Cathy Kendall Unit One Individual Project: Financial Analysis Introduction FIN620-1101C Senior Housing Propertie
How should the capital structure weights used to calculate the WACC be determined?
A firm's current balance sheet is as follows: Assets $100 Debt $10 Equity $90 What is the firm's weighted-average cost of capital at various combinations of debt and equity, given the following information? Debt/Assets After-Tax Cost of Debt Cost of Equity Cost of Capital 0%
A company's given tax rate is 35%. Debt is the following: 5,000, 9.4% coupon bonds outstanding, $1,000 par, with semi-annual payments, Common Stock is : 165,000 shares outstanding, selling for $62 per share; beta 1.15. Market = 6.5 % market risk premium and 5.5% risk free rate. What is the company's WACC?
A firm is financed with the following securities ï?§ Weight of common stock in the capital structure is 40%, beta=1.2 (risk free rate=6% and market return = 10%) ï?§ Weight of corporate bond in the capital structure is 50%, 20-year bond, face value=$1,000, market price per bond = $900, and annual coupon rate = 6%. (Assume