FINA301 WACC Day1

FINA301 WACC Day1 - g P D 1 + = 1 Exam Example Problem p...

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Unformatted text preview: g P D 1 + = 1 Exam Example Problem p Given the information below, fill in the gs for this stock. |-------|-------|-------|-------|-------| ks = 13% 0 1 2 3 4 5 1.65 1.98 2.2770 2.5730 2.8303 94.3437 g = g = g = g = g P D 1 + = 2 Exam Example Problem p Given the information below, fill in the gs for this stock. |-------|-------|-------|-------|-------| ks = 13% 0 1 2 3 4 5 1.65 1.98 2.2770 2.5730 2.8303 94.3437 g = g = g = g = g P D 1 + = 3 TVM question p Your parents start a 529 college fund and intend to deposit $1500 at the end of each year for the next 18 years. They earn 8.5% annually on the money, tax-free. However, at the end of the 10th year, they reach mid-life crisis and take out $10,000 for the down payment on a Boxster. How much LESS money is available for your education at the end of the 18th year? g P D 1 + = 4 Cost of Capital p The firms required rate of return p The firms average cost of funds, which is the average return required by the firms investors p What must be paid to attract funds g P D 1 + = 5 Ignore short-term liabilities g P D 1 + = 6 p The use of debt impacts a firms ability to use equity, and vice versa, so the weighted average cost must be used to evaluate projects, regardless of the specific financing used to fund a particular project p MARKET PRICES n (not book prices) The Logic of the Weighted Average Cost of Capital g P D 1 + = 7 Cost of Capital for Various...
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This note was uploaded on 03/18/2012 for the course FIN 301 taught by Professor Schaeff during the Spring '08 term at Miami University.

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FINA301 WACC Day1 - g P D 1 + = 1 Exam Example Problem p...

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