logo Use SA10RAM to get 10%* Discount.
Order Now logo

Ask This Question To Be Solved By Our ExpertsGet A+ Grade Solution Guaranteed

expert
Ritesh NagarLaw
(5/5)

610 Answers

Hire Me
expert
Leroy BicknellBusiness
(5/5)

714 Answers

Hire Me
expert
Gary BambrickResume writing
(5/5)

549 Answers

Hire Me
expert
Charles BrackenFinance
(5/5)

614 Answers

Hire Me
Others
(5/5)

Using some of the information you put together in Case 1 for your assigned company, we can estimate that company’s Cost of Capital.

INSTRUCTIONS TO CANDIDATES
ANSWER ALL QUESTIONS

Average Cost of Capital

Using some of the information you put together in Case 1 for your assigned company, we can estimate that company’s Cost of Capital.

1. Cost of Capital (WACC) Estimation:

a. Estimate the company’s cost of equity

i. Use the Dividend Discount Model

1. Your forecasted equity rate of return value from Case 1 value can be used here (value from questions 1c in Case 1)

ii. Use the SML/CAPM as an estimation method

1. Lookup the stock’s beta value (Yahoo Finance)

2. Use CAPM to estimate cost of equity

a. Long run value for Market Risk Premium = 7%

b. Long run value for Risk-free Rate = 3%

iii. Take an average of these 2 methods for the overall estimate of cost of equity

 

b. Estimate the company’s cost of debt using the company’s current YTM.

i. Your Case 1 part 2a value for bond yield can be used as the Pre-Tax Cost of Debt

ii. Find the company’s average tax rate

1. One method: On Morningstar, the Financial section, on the Income Statement:

Tax rate = Most recent “Provision for Income Tax” divided by Most recent “Pretax Income”

iii. Then calculate the After-Tax Cost of Debt from these values.

 

c. Estimate the capital structure weights on equity and debt by using the Market Value of Equity (Market Cap) and the Book Value of Debt (as an estimate of market value of debt). Make sure to adjust for units (millions or billions of dollars).

 

d. Estimate the firm’s weighted average cost of capital using the values above. Now we have an estimate of this company’s overall financial cost per year. This value can be used for NPV and IRR project analysis (Chapters 7 and 8)

 

(5/5)
Attachments:

Related Questions

. The fundamental operations of create, read, update, and delete (CRUD) in either Python or Java

CS 340 Milestone One Guidelines and Rubric  Overview: For this assignment, you will implement the fundamental operations of create, read, update,

. Develop a program to emulate a purchase transaction at a retail store. This  program will have two classes, a LineItem class and a Transaction class

Retail Transaction Programming Project  Project Requirements:  Develop a program to emulate a purchase transaction at a retail store. This

. The following program contains five errors. Identify the errors and fix them

7COM1028   Secure Systems Programming   Referral Coursework: Secure

. Accepts the following from a user: Item Name Item Quantity Item Price Allows the user to create a file to store the sales receipt contents

Create a GUI program that:Accepts the following from a user:Item NameItem QuantityItem PriceAllows the user to create a file to store the sales receip

. The final project will encompass developing a web service using a software stack and implementing an industry-standard interface. Regardless of whether you choose to pursue application development goals as a pure developer or as a software engineer

CS 340 Final Project Guidelines and Rubric  Overview The final project will encompass developing a web service using a software stack and impleme

Get Free Quote!

317 Experts Online