AFTER MIDTERM
March 6, 2013
Marriott Corporation: The Cost of Capital
First method makes most sense
Second makes the least sense
What type of investments would
If building a hotel in Dubai WACC will be much less than it would be here
Financial Leverag
April 2013
Finance
Determining debt vs. equity
Whats the difference?
Advantages to equity financing:
- It's less risky than a loan because you don't have to pay it back, and it's a
good option if you can't afford to take on debt.
- You tap into the invest
CHAPTER 10
The Cost of Capital
PROBLEM 101
(a)
Price
Maturity value
Interest
9.5%(1000)
PV
PMT
FV
n
=
=
=
=
Year 0
($900)
Years 120
Year 20
90%(1000)
$1,000
$95.00
900
95.00, set END
1000
20
i
=
yield-to-maturity
= required rate of return
= r = 10.73%
b
CHAPTER 8
RISK AND ITS MEASUREMENT
1.
*
Risk is:
a. The chance that something will come out worse than planned.
b. The amount of money lost by an investor.
c. The returns from a startup company.
d. Putting your money in a savings account.
2.
With respect
Company Information
Bond Rating
Target Debt to Equity Mix
Target Debt Maturity
Coupon Payment
Corporate Tax Rate
Target Equity Shares to Sell
Exteranl Share Ownership
Earning Growth Rate
Estimated Annual Net Income after taxes
Target Capital Raise
BBB
50%
CHAPTER 8
Risk and its Measurement
PROBLEM 81
From the Fisher model:
r = (1 + risk free rate)(1 + risk premium) 1
Since T-bills are considered (relatively) risk free:
r = (1.045)(1 + r ) 1
r
(a) r = 2%
r
r = (1.045)(1.02) 1 = 1.0659 1 = .0659 = 6.59%
(b)
CHAPTER 3
The Time Value of Money
PROBLEM 31
For each case:
PV = 15,000 (negative because you invest or "pay" this money)
i =9
(a)
n=1
FV = $16,350.00
(b)
n=2
FV = $17,821.50
(c)
n=5
FV = $23,079.36
(d)
n = 10 FV = $35,510.46
Note: the longer you can
January 16, 2013
Finance
Advantage of debt vs. equity
o Cheaper
Disadvantage of debt vs. equity
Utility companies pay high dividends and yields
o B/c very little volatility
o Not much competition
o Oligopoly
Role of Financial Managers in a Corporation
CFO
February 6, 2013
Raising Capital (Ch. 15)
Venture Capital
Why invest in it?
o Want to make money
o How capital is being raised
Angel investors first phase of investors
o People pitch ideas for investors
Who regulates endowments?
Pension plans are regu