Component cost of retained earnings DCF based on L R g 175 1600 CAPM 490 997

Component cost of retained earnings dcf based on l r

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Component cost of retained earnings: DCF (based on "L-R" g) 1.75% 16.00% CAPM 4.90% 9.97% Risk premium method: kd+RP 8.00% 4.00% Average to use for ks (disregard DCF number): Component cost of ext. equity: Ke as estimated with Constant Growth Model with Po = 30.5(1-F) = $21.35: Flotation adjustment: Flotation-adj ke based on avg. ks: Cost of preferred stock (Dps/Pn): WACC calculations (In Millions of Dollars, BOOK VALUES) RE = Forecasted earnings * (1-Payout ratio) 13.7016 BP RE = RE Breakpoint= RE/(target % common equity) + Depr'n Retained Earnings (RE, in millions): $13.70 Depreciation (DEP, in millions): $4.50 BP RE (incl Deprn): (BP = 21.08 w/o deprn) $25.58 WACC = wd*Kd(1-T) + wps*Kps + wce*(Ks or Ke) WACC1, when Equity is from RE: 10.57% WACC2, when Equity is from New Common Stk: 11.10% Based on MARKET VALUES, the results would be different: Total MV capitalization: LT debt $48.36 19.48% Preferred 10.00 4.03% Common 189.90 76.49% ------------- ------------ $248.26 100.00% WACC1, when Equity is from RE: 11.53% WACC2, when Equity is from New Common Stk: 15.41% This would substantially change the accepted projects and the cap. bud. --------------- ------------ ---------------------- ------------- ------------ Capital Budgeting Projects (In Millions of Dollars) Period Project 1 Project 2 Project 3 Project 4 0 -25.00000 -15.00000 -30.00000 -10.00000 1 7.10786 3.28677 8.11711 2.29607 2 7.10786 3.28677 8.11711 2.29607 3 7.10786 3.28677 8.11711 2.29607
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4 7.10786 3.28677 8.11711 2.29607 5 7.10786 3.28677 8.11711 2.29607 6 3.28677 2.29607 7 3.28677 IRR: 13.00% 12.00% 11.00% 10.00% Range of financing: Capital Cost: $0.0000 10.6000% Up to: $25.5794 10.6000% Over: $25.5795 11.1000% Optimal Capital Budget: Project Number/Rank ROR Project Cost ------------ ----- ------------- 1 13.00% $25.00 2 12.00% $15.00 0 0.00% $0.00 0 0.00% $0.00 ------------- $40.00 ============= MCC and IOS Data for Graph: IOS $ Amount WACC (Investment Return) -------- ------ ----------- 0.000 10.57% 13.00% 5.000 10.57% 13.00% 10.000 10.57% 13.00% 15.000 10.57% 13.00% 20.000 10.57% 13.00% 25.000 10.57% 13.00% 25.001 10.57% 12.00% Set manually 25.579 10.57% 12.00% Set manually 25.580 11.10% 12.00% Set manually 30.000 11.10% 12.00% 35.000 11.10% 12.00% 40.000 11.10% 12.00% 40.001 11.10% 11.00% Set manually 45.000 11.10% 11.00% Set manually 50.000 11.10% 11.00% 55.000 11.10% 11.00% 60.000 11.10% 11.00% 65.000 11.10% 11.00% 70.000 11.10% 11.00% 70.001 11.10% 10.00% Set manually 75.000 11.10% 10.00% Set manually 80.000 11.10% 10.00% 85.000 11.10% 10.00%
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4/4/96 Financial Statements for the Year Ended December 31, 1995 ( Cash & Sec. $5.0 A/P A/R 46.3 Accruals Inventory 74.1 N/P ------ CA $125.4 CL Net Fixed Assets 93.1 LT Debt Pref. Stk Common Stk RE ------ Tot Assets $218.5 Tot Claims ====== ========= =========== ================== ======== ========== Sales $400.5 Operating costs excluding depreciation 364.6 Depreciation 4.1 -------
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