# Essays Tagged: *"Cost of equity"*

#### Case Study about a merger between Kennecott and Carborundum.

eturn related to the investment was not high enough to justify a purchase **of** the company. Peabody's cost **of** debt was .038. This was calculated by assuming a 40% tax rate and .095 rate on debt (Exhibit ... efore, we assumed the rate **of** debt at the time **of** purchase would have been similar. Also, Peabody's cost **of** **equity** was .1397. This was calculated by using a risk-free rate **of** .055, which was the rate ...

Subjects: Businesss Research Papers > Case Studies

#### Solution of the Menko case (finance)

ects" due to leverage. These side effects **of**ten include the tax shield **of** debt, expected bankruptcy costs, and agency costs. In symbols, APV is calculated as:Where NPV is the value **of** an all-**equity** fi ... all-**equity** firm (base-case), calculated using the cash flows to unlevered **equity** and the unlevered cost **of** **equity**, and NPFV is the NPV **of** the effects **of** financing such as the tax shield benefits **of** d ...

Subjects: Businesss Research Papers

#### Nike, Inc.

under the recent leadership **of** industry veteran Mindy Grossman had performed extremely well. On the cost side, Nike would exert more effort on expense control. Finally, company executives reiterated t ... ent. In order to build clear guidance to reveal their strategies, Joanna Cohen must estimate Nike's cost **of** capital. The problem is Joanna Cohen was mistaken in calculating the cost **of** debt using hist ...

Subjects: Businesss Research Papers > Case Studies > Clothing, Footwear and Cosmetics

#### Explain the relationship between the cost of capital, bond ratings, and the capital budgeting decision-making process

AbstractThe purpose **of** this essay is to explain the relationship between the cost **of** capital, bond ratings, and the capital budgeting decision-making process.**Cost** **of** CapitalComp ... ng debt (borrowing from a bank is equivalent for this purpose), and reinvesting prior earnings. The cost **of** capital for a firm is a weighted sum **of** the cost **of** **equity** and the cost **of** debt. Re-invested ... a weighted sum **of** the cost **of** **equity** and the cost **of** debt. Re-invested money is also charged at the cost **of** **equity**, since if the money is not reinvested is will normally be returned to shareholders. I ...

Subjects: Businesss Research Papers > Accounting

#### Nike Inc.: Cost of Capital

Executive summaryIn this report we focus on Nike's Inc. **Cost** **of** Capital and its financial importance for the company and future investors. The management **of** ... ment **of** Nike Inc. addresses issues both on top-line growth and operating performance. The company's cost **of** capital is a critical element in such decisions and it is important to estimate precisely th ... a critical element in such decisions and it is important to estimate precisely the weighted average cost **of** capital (WACC).In our analysis, we examine why WACC is important in decision making and we s ...

Subjects: Businesss Research Papers > Case Studies > Clothing, Footwear and Cosmetics

#### Cost of Capital

The cost **of** capital and bond rating are very important in the capital budgeting process. “Capital b ... classic rule which is to take on only projects with positive Net Present Value (NPV). The project's cost **of** capital is the rate investors require to undertake the investment, and should discount all f ... hould discount all future cash flows at this rate key input to the capital budgeting process is the cost **of** capital. The cost **of** capital for a company is based on the cost **of** **equity** and the cost **of** de ...

Subjects: Businesss Research Papers > Management

#### Financial Theories

imperfections they admit are corporate taxes (Modigliani and Miller, 1963). M and M states that the cost **of** **equity** depends on three things: the required rate **of** return on a firm's assets, the cost **of** ... s the debt / **equity** ratio, the increase in leverage raises the risk **of** the **equity** and therefore the cost (RE) (Ross, 2001). [Excellent] The risk **of** the **equity** depends on two things: business risk (i.e ...

Subjects: Businesss Research Papers > Accounting

#### Marriott Corporation: The Cost of Capital

nificant impact on the firm's financial and operating strategies. Marriott measures the opportunity cost **of** capital for investments **of** similar risk using the Weighted Average **Cost** **of** Capital ("WACC"). ... the divisions and for Marriott:1) We used the Capital Asset Pricing Model ("CAPM") to calculate the cost **of** **equity**.2) The cost **of** debt was determined by adjusting the pre-tax return on debt capital fo ...

Subjects: Businesss Research Papers > Case Studies

#### Dividend Growth Model, Capital Asset Pricing Model, Modern Portfolio Theory, Estimation of Untraded Stocks

han that **of** the economy and have an established and stable dividend payout.In order to estimate the cost **of** **equity** using the Dividend Growth Model, we simply adjust the model's equation for estimating ... we get the following:P(r - g) = D1r - g = D1 / Pr = (D1 / P) + gTherefore in order to estimate the cost **of** **equity** through the Dividend Growth Model, we simply add the constant growth rate and the pro ...

Subjects: Businesss Research Papers > Management

#### Capital structure (D/E) differs substantially from one company/industry to another. Can theories of capital structure shed light on this?

ity capital (D/E ratio). An efficient mixture **of** capital reduces the price **of** capital. Lowering the cost **of** capital increases net economic returns, which, ultimately, increases firm value. There are a ... heory assumes that the market is in a perfect capital market status as no transaction or bankruptcy costs, asymmetric information flow, firms and individuals can borrow at the same interest rate, no t ...

Subjects: Businesss Research Papers > Markets & Exchanges