MGMT310_lecture21

MGMT310_lecture21 - Last Lasttimewediscussed How can we...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Last time we discussed… How can we come up with an occ for our project? Estimating cost of equity D E Use current capital structure Estimating cost of debt What is the WACC  D C E WACC R 1 t R D E D E Flotation costs: A E D f (E / V) f (D/ V) f Now let’s do some review questions! Use target capital structure Now let s do some review questions!
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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)
Image of page 2
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 i t i t t 5 5% th t it di id d 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 )?
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Example: cost of equity (#14.2) (using SML approach) The Up and Coming Corporation’s common stock has a beta of 1.05. If the risk free rate is 5.3% and the expected return on
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern