MGMT310_lecture21

MGMT310_lecture21 - Last Lasttimewediscussed How can we...

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st time we discussed… Last time we discussed… How can we come up with an occ for our project? Estimating cost of equity Use current capital structure Estimating cost of debt hat e ACC      DC E DE WACC R 1 t R   What is the WACC Flotation costs: AED f( E / V ) f ( D / V ) f  ow t’s o me view uestions! Use target capital structure Now let s do some review questions!
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oncept check Concept check Suppose a firm uses its WACC to evaluate all projects. Do you think it will underestimate or overestimate… 1. … the value of a high risk project? 2. … the value of a low risk project? Reminder : Don’t use a firm’s WACC as the occ for all potential projects. It’s only appropriate to use if the project in question is of average risk (compared to the firm’s current projects)
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ample: cost of equity (#14.1) Example: cost of equity (#14.1) (using constant dividend growth approach) The Down and Out Co. just issued a dividend of $2.40 per share on its common stock. The company is expected to maintain a constant 5.5% growth rate on its dividends indefinitely. If the stock sells for $52 a share, what is the company’s cost of equity (R E )?
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ample: cost of equity (#14.2) Example: cost of equity (#14.2) (using SML approach)
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This note was uploaded on 02/05/2011 for the course MGMT 310 taught by Professor Matthewjamesbarcaskey during the Fall '08 term at Purdue.

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MGMT310_lecture21 - Last Lasttimewediscussed How can we...

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