WACC Essay

A. Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items: Before Home Depot calculates the net present value (NPV), internal rate of return (IRR), terminal value (TV), and modified internal rate of return (MIRR) of its newest potential investment project, the company must first calculate its free cash flows. The calculation begins by subtracting the operating costs and the 20% depreciation expenses from the cash flows…

The company has purchased equipment which cost $25 million with the renovation and installation cost is $3 million and they have to pay the import duty cost which is 8% of the purchase price so the import duty is $2 million; thus, the total money the company has spent for the new PPE is $30 million. The PPE has the 8% depreciation which is last twelve economic years. Hence, each year the profit of the company will deduct an amount of the depreciation expense that is $2.4 million; because of the…

EPS of 1.75 for the fiscal year. HRB is a steady stock with the potential for growth based on the Earnings per share and E/P ratio. We can also rationalize the before statement by evaluating the Weighted Average Cost Capital (WACC). H&R Block has a WACC is 14.18%. The WACC proves that HRB is generating higher returns on investment than it costs the company to raise the amount of capital needed for that investment. It is earning excess…

One of the biggest disagreement between the two companies was the equity value of Lombardi. According to Lombardi, their company was valued at $8M, Hagilent Technologies’ equity expert rated Lombardi as a sole entity around $1M - $1.7M. Even though Hagilent Technologies equity expert explained that valuing a band name was difficult, Hagilent Technologies was disappointed to learn that the value was lower than the price offer and lower than their expectations (Gouveia & Lee, 2016). This issue…

Among the main factors proposed as rationale for mergers, from the society’s point of view the most justifiable factor is synergy. Synergy refers to the economic benefit which could be achieved through the merger of companies and is often considered as the major driving force for a merger. With synergy the post merger share price of the company increases and shareholders will benefit. The synergy from the merger could be attributed to a handful of factors, such as increase in revenue,…

Long term sustainability of a company depends on various factors. Strategic capital structure would cater long term financial solution for the company. Capital structure of a company will be consisting of both debts and equity. The ratio between debt and equity will be decided based on number of strategic factors such as industry, PEST factors, legal and corporate governance of the company. When deciding the capital structure, organizations should understand both positives and negatives of the…

– 1,000,000 = $45,250,000 = FCF1/(WACC – g) 45,250,000 = 2,300,000/(.13 – g) Solve for g g = 7.92% so the 7% growth rate is too low. 3. Solve for the NPV of the FCF’s CF0 = 0 CF1 = -1,000,000 F1 = 2 CF2 = 3,000,000 F2 = 6 NPV I = 9% NPV = $9,568,013 There are 3,700,000 shares so the additional per share value is 9,568,013/3,700,000 = $2.59 P0 = 46.73 + 2.59 = $49.32 4. Horizon value in year 4 = FCF in year 5/(WACC – g) = 18.65(1+.05)/(.12-.05) =…

Ariana Orfanella Star River Electronics Case Study Overall Company Performance Star River’s finances initially lead you to believe that there has been a steady incline of growth and success. The sales increase appears to represent healthy all around healthy growth. Their sales have averaged a steady incline of around 15% growth per year which seems encouraging until you look at several other factors. All of this should be backed up by looking at Net Income, however that’s where the findings…

Overview: Dalco Construction Inc. is a government-funded company. The major operation it is considering to complete by the 2020 is a major capital investment decision whether to build a bridge or an underground subway train to avoid the heavy traffic congestion. The funding is constraint by $5 Million. Managers of Dalco Inc. have to make a capital budgeting decision to select the best decision making tool to base their selection. For the previous two years Net Present Value (NPV) and Internal…

can be seen as a holding cost. In example if we order a huge lot, we can’t invest the money used for this lot, this is a loss in potential investment income. Companies often use there WACC (weighted average cost of capital) as this number. The holding cost is €10 / 1000KG per month (= 0.12/KG per year) and the WACC is 8.5% (= 0.2125/KG per year). Orders or production are independent: This assumption is made to make sure there are no extra advantages of producing or ordering bigger lot-sizes.…