How would your forecast assumptions differ for lowes

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Intermediate Financial Management
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Chapter 18 / Exercise 025
Intermediate Financial Management
Brigham/Daves
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4. How would your forecast assumptions differ for Lowe’s? Complete and recommend a five-year Lowe’s forecast to Galeotafiore
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Intermediate Financial Management
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Chapter 18 / Exercise 025
Intermediate Financial Management
Brigham/Daves
Expert Verified
From a profitability standpoint, Home Depot created value, according to their 12.3% WACC found in exhibit 3. They are consistently creating value in all years (97-01) beings their ROC is higher than their WACC. Considering the Industry ROE average was 17.1% in 1997 according to Wikinvest.com, Home Depot was a little behind the game as far as creating value for their investors. Home Depots Gross Margin increased steadily each year, indicating higher profits, as well as their operating margin increasing to a high in 99 and leveling out around 2001 due to the economic factors erupting after 9/11. Their NOPAT margin is higher than their biggest competitor lowes so they were consistently producing more returns, in conjunction with greater sales figures Case 15 Nike Inc. 1 What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2 If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. 3 Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4 What should Kimi Ford recommend regarding an investment in Nike? Case 27 The Jacobs Division 1.If you were Mr. Soderberg, would you recommend that Mr. Reynolds accept the Silicone-X project? If not, why not? 2. If you recommend acceptance, how should the necessary plant capacity be provided? 3. How should Mr. Soderberg take the alternative prices into account in making his decision about the Silicone-X project? 4. From MacFadden's point of view, how do you like Mr. Reynolds's method of
analyzing investments at the Jacobs Division? 5. If you were Mr. Soderberg, would you recommend that Mr. Reynolds accept the Silicone-X project? If not, why not? If so, should the labor- or capital-intensive plant be built? Case 33 California Pizza Kitchen 1. In what ways can Susan Collyns facilitate the success of CPK? 2. Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of leverage on the cost of capital, you may assume that a firm’s CAPM beta can be modeled in the following manner: L = U [1 + (1 − T ) D / E ], where U is the firm’s beta without leverage, T is the corporate income tax rate, D is the market value of debt, and E is the market value of equity.

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