Question 1: How, if at all, would you change Cohen’s equity cost of capital calculation? Why? In this case, Cohen calculated the equity cost of capital by using CAPM: rE = rf +βi ( E[rmkt]-rf ) 10.5% = 5.74% + 0.80 * (5.9%) * Risk free rate: The rf should be kept consistent with the time horizon of the investment. Since Cohen did her estimate in 2001 and Nike’s bond will expire in 2021, it is reasonable to use the 20-year T-bond rate, 5.74% as the risk free rate. * Risk premium: Arithmetic mean is often used for one-year period valuation, while geometric mean is better for long-term period estimated expected returns.
Read the "JET Copies" Case Problem on pages 678-679 of the text. Using simulation estimate the loss of revenue due to copier breakdown for one year, as follows: In Excel, use a suitable method for generating the number of days needed to repair the copier, when it is out of service, according to the discrete distribution shown. Repair Time P(Y) Cumulative RN Range 1 0.20 0.20 01-20 2 0.45 0.65 21-65 3 0.25 0.90 66-90 4 0.10 1.00 91-99,000 In Excel, use a suitable method for simulating the interval between successive breakdowns, according to the continuous distribution shown. In Excel, use a suitable method for simulating the lost revenue for each day the copier is out of service. Put all of this together to simulate the lost revenue due to copier breakdowns over 1 year to answer the question asked in the case study.
Date: February 24, 2014 From: Class 2014 To: Shakespeare Inc. Re: Medical Benefits Payable, Line of Credit Modification, and Acquisition of New Publishing Company 1. Management recognizes its IBNR liability in accordance to the guidance of ASC 405-30-25-1. Although management has the history of accurately estimating the IBNR liability, there is a $0.5 million difference between the estimated liability amount and the actual claims amount received. Management should reduce its IBNR liability to $0.75 million. This will result an increase of net income by $0.5 million.
• Due to the economic crises and to the changes of people behaviours the resort starting to be confronted with loss in financial performance, but even when it was a good time for the diving industry they had rich a profit only in a range of 2%. • The company should reassess the strategy and to take immediately action in order to became a successful business and to generate a good return of investment (10%). • The management should choose if the strategy will be focused on a business more family-oriented or adventure oriented, or if they can combine both. Options: 1. Selling Coral Divers Resort The most significant reason to sell the business is the declining revenues.
Every year due to the high demand for vacation cruises, the amount of pollution dumped into the oceans are staggering. While efforts “could” be made to stem this problem, they are not, because of the high costs involved. If the cruise lines dump their waste beyond 25 miles, then the legal issues become null and void. “By international law, countries may regulate oceans for three miles off their shores. International treaties provide some additional regulation up to 25 miles offshore.
As stated earlier, we offered to pay $5.1 billion for the equity portion of the company. However, since it will take 12 to 18 months for the deal to close we must find the present value of our offer. When we discount our offer over 12 to 18 months, we can determine that the present value of the offer is $4.7 billion (Also see Exhibit 1). If we compare this to the implied market value of the equity, we can see that our offer is right in line with the value of the equity. As you can see, while we are paying right at the high end implied value for the firm, we are not overpaying for the company.
They would make semiannual payments of $12.303 million and can sell the equipment at the end of its 25-year useful life at $40.185 million. If Acela’s revenue expectations are not met and Amtrak remains unprofitable, the present value of the cost of this option would be 260.26 million. Assuming profitable, the present value of the costs would become approximately $164.77 million due to the benefit of the tax shield. Also, Amtrak is considering an 80% debt to 20% equity leveraged-lease structure to finance the locomotives and train sets. They would make semiannual payments and has the option to buy the equipment from the equity investor, BNY Capital
Executive Summary and Introduction In May 2001, portfolio manager Kimi Ford was considering whether Nike, Inc. would be a good investment option. With an emphasis on value investing, Ford estimated that Nike was undervalued at discount rates below 11.17%. Her assistant Joanna Cohen’s did further calculations and estimated that Nike’s cost of capital was 8.4%. Ford manages a well-diversified portfolio and she has the focus on value investing. Therefore, we assume she would be interested in quality stocks with are fairly priced.
Ocean Carriers Project Report Content I. Ocean Carriers.............................................................................................3 II. Company Analysis.......................................................................................4 III. Estimating WACC .........................................................................................5 IV. Estimating Price of the new vessel ..............................................................6 V. Estimating Cash Flows..................................................................................7 Estimated Revenues Operating Expenses Depreciation Pretax Profit (EBIT) Profit after Tax (Net Income ) Operating Cash Flows Capital Investment Working Capital Recovered Incremental Cash Flows NPV, IRR, MIRR VI.
In valuing a company whose CFROI is higher than average, HOLT assumes those returns will gradually fade toward the market norm because of competitive pressures. The rate of fade is determined in part by the volatility of the company's historic CFROI levels. That's important because HOLT's valuation