Apparently, her calculation is wrong. To find the cost of debt, we should use the yield to maturity approach: PV=t=1Tc×FV(1+y)T+FV(1+y)T Nike’s bond with a current price of $95.60 will expire on 2021. If the NorthPoint Group decides to invest in 2001, interests will be paid semi-annually for 20 years at a rate of 6.75%. Thus we can calculate the current yield to maturity of the bond to represent the cost of debt before tax as following: 95.6=i=1406.75%×100(1+y)40+100(1+y)40 Question 4: What is your estimate of the debt cost of capital? According to
If this project would cannibalize other projects by $1 million of cash flow before taxes per year. How would this change your answer to part a? c. Ignore part b. if the TR dropped to 30%, how would that change your answer to part a? a. [pic] b. b.
Planning to adopt a value-based performance metric? Think it will help you make smarter acquisition decisions? Okay, chew on this: If EVA is so smart, how come it didn't prevent EVA poster child The Quaker Oats Co. from making its disastrous $1.7 billion purchase of Snapple Beverages Co. in late 1994--which it was forced to sell two years later for a mere $300 million? Answer: Quaker didn't use EVA to calculate its $14-per-share offering price for Snapple. According to company spokesman Mark Dollins, Quaker uses a discounted cash flow model to evaluate acquisitions and divestitures, and merely uses EVA as an incentive compensation tool.
a. b. What is the minimum level of synergies for Vodafone shareholders to at least break even on the deal? Estimate the market’s assessment on December 17, 1999 about the likelihood that the deal will succeed. To do so, construct a merger arbitrage position where you buy one Mannesmann share (at the price prevailing on December 17, 1999) and sell short 53.7 Vodafone shares. Assume that the deal finalizes in 3 months time and a risk—free interest rate of 5.5%.
What steps do you recommend the company take? Base your forecasts on the 1996 performance. • Finance it through debt; it has so little and is a big company by this point. But don’t take too much, still achieve a DPO reduction so that the debt is minimal • No, it will not be possible. • Would need to reduce working capital by $260M • Would need to increase gross margins by 328bps • If growth is so important, then a price raise would likely slow that.
PMT = (.1085/2)*1000=54.25 N = 60 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1,190.90 b.What is the value of this bond 10 years after it was issued? PMT = (.1085/2)*1000=54.25 N = 40 R = 0.09/2=0.045 (or 4.5 for calculator purposes) FV = 1000 PV =? Answer: 1170.20 The price will decrease as approaching maturity since at maturity (just before expiration) it will be worth the par ($1,000) since this is a premium bond. 2.Suppose your company needs to raise $30 million and you want to issue 30-year bonds for this purpose.
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
Let’s first look at the repercussions of FPL maintaining their 47 year streak, increasing the dividend as usual. This is the most unlikely scenario given that FPL’s current payout ratio is 1.07 while the industry average is 0.8. By tying up its cash flows in dividend payouts, FPL is currently unprepared to face the increased competition that is sure to come from industry deregulation. This would not bode well for future profitability and value to investors. Recommendation Kate Stark should change her previous “hold” recommendation to “sell”.
What should Excellent do? Hint: Convert all costs and revenues to present values using the cost of capital as the interest rate (e.g. the present value of $2 million per year perpetually is $2/.1 = $20 million). B. Market Research Option Excellent Manufacturing has to decide whether to spend money on market research to find out the level of demand.
Kwik Lube Case Study Compute the loss for Kwik Lube stations during the last two years using trend analysis. How accurate can results claim to be? With a -.01 bias and a negligible tracking symbol, the forecast analysis substantiates Dick Johnson’s assertion that the presence of competition cut directly into Kwik Lube’s profit. A trend analysis was conducted and projects sales in the amount of $1,419,445 and $1,530,445 for 2006 and 2007, respectively. Comparing the gross sales forecast to actual sales, this results in a loss of $309,445 in 2006 and $420,445 in 2007.