Questions 1. a. Discuss the specific items of capital that should be included in the WACC. The capital that should be included in the WACC is the common stock, preferred stock, bonds and any other long-term debt b. The comptroller currently finds the weights for the weighted average cost of capital (WACC) from information from the balance sheet shown in Table 2. Compute the book value weights that the comptroller currently uses for the company’s capital structure.
What is the cost of common equity? (5 pts) b. Explain the advantages and disadvantages to use the CAPM model as the method to compute the cost of common equity. Compare and contrast this method with the dividend growth model approach. (10 pts) 3.
b. The value of equity is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity. c. The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows before the horizon date at the unlevered cost of equity. d. The value of equity is calculated by discounting the horizon value and the free cash flows at the cost of equity. e. The APV approach stands for the accounting pre-valuation approach.
It includes options and warrants as well as debt and stock. "(2) Participation rights – contractual rights of security holders to receive dividends or returns from the security issuer’s profits, cash flows, or returns on investments. " "(3) Preferred Stock – a security that has preferential rights compare to capital stock. " (C) What information about securities must companies disclose? Discuss how Hincapie should report the proposed preferred stock issue.
DCF= CF/(1+r)1 where 16% is estimation of required prferred return rate DCF= .16/(1+.107) DCF = 14.45% For Question 5, we found that the book value of the WACC is lower as it is stated in p. 389 of the textbook. WACC = 8(1-.35)(.20) + 7.75(1-.35)(.133) + 6(.167) + 16(.50) = 10.7% Kenneth found the market value of the stocks, and I will use his data for the market value
The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some “negative goodwill.” Proper accounting treatment by Easton is to report the amount as A. part of current income in the year of combination. B. a deferred credit and amortize it. C. an extraordinary gain. D. paid-in capital.
Horizontal analysis is a financial statement analysis technique that demonstrates changes in the amount of corresponding financial statement items over period of time. It is a useful tool in evaluating the trends represented on a balance sheet. The statements for two or more periods are used in horizontal analysis. The changes are generally shown in percentages and dollars. With horizontal analysis, the guideline or base year is represented and other years are compared to that base year.
? How does systematic risk differ from unsystematic risk? What is meant by the Capital Asset Pricing Model? Describe how it relates to expected return and risk. Find the real return on the following investments: Stock Nominal Return Inflation A 10% 3% B 15% 8% C -5% 2% ?
Ensure you state where a particular assumption is used in your proof. (600 points) [pic] Given the two IC Curves, Point A on IC1 is northeast of IC2’s Point B implying that IC1 is has a higher utility than IC2. On IC2, Point D is northeast to IC1’s Point C implying that IC2 is the IC curve with the higher utility, which creates a logical inconsistency. This would break the assumption rule that every consumption basket lies on one and only one indifference curve. It would also break the transitivity assumption.
Case Analysis - Acme Investment trust How is the fee structure suggested by Hicks, Muse, Tate, and Furst different from standard private equity fee structure? Standard PE fee structureGenerally Standard fee structure has two components Management fees and Carried interest.In Standard PE fee structure private equity investors receive capital gains as long as the portfolio generates certain returns i.e portfolio value exceeds 100% .Under this structure the cost basis of each investment is first returned to limited partners. The remainder of capital gain on this investment was then divided between limited and general partners on the basis of agreed upon formula. The fee structure suggested by HMFT * According to the fee structure suggested by Hicks, Muse, Tate, and Furst ,the investors are guaranteed at least 20% return. The management fees received by GP will be according to industry standards.