CHAPTER 17
CHAPTER
Payout Policy
Objectives
Decide on use of firms annual earnings.
To present the different type of dividend payments.
To
To analyze the share repurchase policy of the firm.
To understand the relationship between the
To
dividend and share
Case 7
Kimberly-Clark Corporation
(Cost of Capital)
The Kimberly-Clark Corporation has hired you to develop a hurdle rate to be used as the basis for
analyzing investment decisions. In other words, estimate their cost of capital. Assume new debt financing
Case 5
HERSHEY COMPANY
(Cost of Equity)
You have been asked by your boss, the Director of Equity Research, to estimate the
Cost of Equity for Hershey. Since one of the primary purposes of your assignment is to provide
a blueprint for newly hired analysts
Case 6
CAPITAL STRUCTURE WEIGHTS
(For Weighted Average Cost of Capital)
In estimating a corporations cost of capital, it is generally recognized that the
appropriate weights to apply to the costs of debt and equity are the weights of the target
capital st
Case 5
HERSHEY COMPANY
(Cost of Equity)
You have been asked by your boss, the Director of Equity Research, to estimate the
Cost of Equity for Hershey. Since one of the primary purposes of your assignment is to provide
a blueprint for newly hired analysts
Case 4
General Mills, Inc.
(Cost of Equity)
Your goal is to estimate the cost of equity for General Mills using the Gordon or
Discounted Cash Flow Model approach [Rcs=Div1/P0+g]. You are given that the cost of debt
for General Mills is 4.3 percent. Use an
Case 4
General Mills, Inc.
(Cost of Equity)
Your goal is to estimate the cost of equity for General Mills using the Gordon or
Discounted Cash Flow Model approach [Rcs=Div1/P0+g]. You are given that the cost of debt
for General Mills is 4.3 percent. Use an
Case 3
HERSHEY COMPANY
(Cost of Debt)
Your goal is to estimate the cost of debt for Hershey Company. In other words, you are
trying to estimate the coupon that Hershey would need to offer on a new non-callable 15-year
bond in order to sell the bond at par
Case 2
KIMBERLY-CLARK AND EXXON MOBIL CORPORATIONS
(Cross Sectional Ratio Analysis)
There are two parts to the analyses in this case. In the first part, you are asked to
compare the Kimberly-Clark financial ratios from Case 1 to the Industry Average Ratio
Case 1
KIMBERLY-CLARK CORPORATION
(Ratios and Financial Measures)
Using the Kimberly-Clark 2011 financial statements that you obtained from its website,
calculate and/or verify the following measures as reported in the Kimberly-Clark Value Line
and Capita
Cost of Capital
The cost of capital is most often used as hurdle rate (minimum
acceptable return on a new project) for capital budgeting decisions. In
other words, a project has to earn at least its cost for a firm to invest in
it. From the investors poin
Case 7
Kimberly-Clark Corporation
(Cost of Capital)
The Kimberly-Clark Corporation has hired you to develop a hurdle rate to be used as the basis for
analyzing investment decisions. In other words, estimate their cost of capital. Assume new debt financing
Case 3
HERSHEY COMPANY
(Cost of Debt)
Your goal is to estimate the cost of debt for Hershey Company. In other words, you are
trying to estimate the coupon that Hershey would need to offer on a new non-callable 15-year
bond in order to sell the bond at par
Historical (Actual) Return
Most individuals invest money with an expectation to earn more
money at some future date. So, how do we assess performance
of our investments?
Dollar Return = Amount Received-Amount Invested = P i,t - P i,t-1
Rate of Return = Do
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
85,000
100,000
110,000
110,000
110,000
New Unit Sales
0
75,000
75,000
75,000
75,000
75,000
Current Unit Sales
0
10,000
25,000
35,000
35,000
35,000
Project Unit Sales
0
Price per Unit
$0
$200
$200
$200
$200
$200
Ol
Valuation Discounted Cash Flow Analysis
DCF is a fundamental valuation methodology used for a range of applications. It is
premised on the notion that the value of a firm is equal to the present value of its future
cash flows. Therefore, one needs to proj
Comparable Companies Analysis
Applicable to IPO valuation, restructuring, investment decisions, M&A.
Comparable Companies Analysis (CCA) is one of the key valuation methodologies. CCA established a benchmark
against which the banker can establish valuatio
Case 16
Kimberly-Clark Corporation
(Firm valuation using DCF)
Determine the enterprise value, market value of equity and price per share of Kimberly Clark
using DCF analysis. Use a projection period of 5 years and 8x multiple to compute terminal value.
Us
Case 15
Kimberly-Clark Corporation
(Firm valuation using comparable firms)
Determine the enterprise value, market value of equity and price per share of Kimberly Clark
using the following industry comparables: Colgate Palmolive, Proctor and Gamble, Clorox
Chapter 7
I.
Preferred Stock
A.
Features of preferred stock
1.
Owners of preferred stock receive dividends instead of interest.
2.
Most preferred stocks are perpetuities (non-maturing).
3.
Multiple classes, each having different characteristics, can be is
Case 1
KIMBERLY-CLARK CORPORATION
(Ratios and Financial Measures)
Using the Kimberly-Clark 2011 financial statements that you obtained from its website,
calculate and/or verify the following measures as reported in the Kimberly-Clark Value Line
and Capita
Case 2
KIMBERLY-CLARK AND EXXON MOBIL CORPORATIONS
(Cross Sectional Ratio Analysis)
There are two parts to the analyses in this case. In the first part, you are asked to
compare the Kimberly-Clark financial ratios from Case 1 to the Industry Average Ratio
Chapter 7
Fundamentals of Capital
Budgeting,
Part I
Objectives
Learn how to determine the relevant cash flows for
various types of proposed investments;
Be able to compute depreciation expense for tax
purposes;
Understand the various methods for computing
Chapter 7
Fundamentals of Capital
Budgeting
Part II
1
Objectives
Introduce investment decision analyses beyond
the NPV rule;
Understand how to conduct project analyses,
such as
Scenario Analysis;
Sensitivity Analysis;
Break-Even Analysis.
Learn crea