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Financial Situations
The first calculation is the cost of debt. This is done on an after-tax basis. The before-tax cost of debt is 4% and the tax rate is 35%. So the after-tax cost of debt is 65% of the before-tax cost of debt, thus 2.6%. The cost of retained earnings is calculated by dividing the current stock price by the expected dividend. This gives a value of 3.85%, to which the 3% growth rate is added, giving a cost of retained earnings of 6.85%.
The cost of equity is calculated using the capital asset pricing model. The market risk premium (12-3.25) is multiplied by the beta to get 14%, and then the risk free rate of 3.25% is added to this to give a cost of equity of 17.25%.
The same calculation is done for this one, but different numbers are used. The market risk premium is (5-2) = 3%, to which the beta is multiplied for a value of 4.8%. The risk free rate of 2% is added to this to give a cost of equity of 6.8%.
The WACC is the weighted average cost of capital. The weights for the three capital types are 40% debt, 10% preferred and 50% common. The cost of debt is done on an after-tax basis the same as above; common equity is calculated using the CAPM, less flotation cost. The preferreds are calculated as the preferred dividend ($1.50) divided by the price of the preferred ($26)...
The cost of each type of financing is multiplied by its weight in order to derive the weighted average cost of capital.
4. This question covers a number of different capital budgeting evaluation methods. Payback period is done bluntly, by counting down the money earned by the project against the original outlay. B is the net present value, which is calculated when you run the cash flows through the NPV calculation in Excel, using the discount rate provided. The project that will be approved is the one that has the highest NPV. To calculate with a new rate of return, simply plug the new number (10%) into the old formula. The internal rate of return can be calculated using the IRR function in Excel. NPV is the best method of deciding. It uses the same underlying math as IRR, but the NPV takes into account the total dollar value that is added to the company. When evaluating mutually exclusive projects, the one that adds the most value is more important than the one with the highest rate of return.
5. YTM is calculated a yield to maturity calculator, given the inputs. The basic principle is the total yield will be all of the interest payments, less the premium paid.
6. A is calculated using the dividend discount model to solve for the stock price, given the…
For example, many of the large investment banks may choose to deal only with large deals will have minimum transaction sizes. Therefore, the first consideration may be the suitability of the bank given the size of the organization. There may also need to be consideration of the degree of attention and expertise that the investment banker direct with the company, even if the minimum is met, large organizations with
Apollo Hospitals India's Apollo Hospitals Group India Overview Company Overview Porter's Five Forces Threat of New Entrants Supplier Power Buyer Power Threat of Substitutes Competitive Rivalry Strengths Weaknesses Opportunities Threats Strategic Alternative Identification & Fit Assessment Competitive Position, Capabilities, and Deficiencies Strategic Choice & Strategy Formation Finance Income The Apollo group has an extraordinary success record and has proven that healthcare in India can compete with many first world organizations with third world resources. The company faces a number of challenges in the domestic market and must continue to
Since 2010 the organization has demonstrated a decline in revenue of 11.08%. However, one would expect some decline as a result of the divestments took place in 2011. The gross profit for the year ending 2012 was $8,019, which equates to a gross profit margin of 22.21%. However, the operating profit demonstrated a loss of $519, hindered by high ongoing Goodwin and intangible asset charges. However, was a lower operating
58 (YHOO), 13.38 (NKE) and 8.15 (BA). There are many explanations for the differences between the P/E ratios of these companies. One is the expected rate of growth. Each of these companies is operates mainly in one market, and is either the dominant player or in an industry with only one other major competitor. Some of the factors that contribute to the growth rate will contribute to differences in the
Finance Assessing a Potential Investment in Facebook Under the concept of time value, money today is worth more than the same amount in the future (Nellis and Parker, 2006). This is over time, inflation will erode the value of money and in a years time $100 will buy less than it will buy today. If Facebook is offering a $100,000 bond, for one year, the investor, wanting to make a profit and
Finance Time Value of Money; Assessing the Value of a Starbucks Bond The concept of the future value of money and the present value of money are useful when assessing potential investments. The future value of an investment is the value that the investor will expect to receive at some point in the future. If an investor is considering purchasing a Starbucks bond which will pay one $2,000 in a year's time,