Project Genesis | Atlantic Corporation | ACE Consulting Group | “A service we provide with excellence“ | ------------------------------------------------- Executive Summary The purpose of this report is to assess the viability of the acquisition of Royal Paper Corporation’s (Royal) Monticello mill and box plants by Atlantic Corporation (Atlantic). This will be conducted through the evaluation and analysis of whether this project is profitable
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Marriott Corporation: The Cost of Capital April 2012 Executive Summary Determining the appropriate cost of capital for new investment projects for a diversified company like the Marriott Corporation is not an easy endeavor. However‚ it is an important exercise because the more effective the process‚ the better it can help to support the company’s growth objective with its financial strategy. The four components of the financial strategy are: manage rather than own hotel
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What is the weighted average cost of capital (WACC) for Marriott Corporation? WACC = (1 - τ)rD(D/V) + rE(E/V) D = market value of debt E = market value of equity V = value of the firm = D + E rD = pretax cost of debt rE = after tax cost of debt τ = tax rate = 175.9/398.9 = 44% Cost of Equity Target debt ratio is 60%; actual is 41% [Exhibit 1] βs = 1.11 βu = βs / (1 + (1 – τ) D/E) = 1.11/(1 + (1 – .44) (.41)) = 0.80 Using the target debt ratio of 60%: βTs = βu (1 + (1 – τ) D/E)
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Guillermo Furniture manufacturing‚ located in Senora‚ Mexico‚ has been a popular furniture manufacturing company in the area for years until the late 1990s when new competitors from overseas entered the market and an influx of people and jobs raised the cost of labor substantially. Although Guillermo was well established in his business and the work was reliable‚ he was unable to keep up with the competitors and their high-tech approach to furniture making. “Firms can overcome resource constraints and
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CASE QUESTIONS Cash Flows and Value. Cost of Capital Case 1: Hop-In Food Stores‚ Inc. 1. Determine the correct price for this particular IPO. Use several methods to do this and compare them. 2. What extra information would you try to acquire in a real life situation? Case 2: Chem-Cal Corporation 1. How do you calculate the WACC for this firm? 2. What is the cost of capital of the debt‚ preferred stock‚ and common stock (assume the equity beta is 1.22)? 3. Calculate the WACC. How can a WACC be used
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accounting controls until John Altizer was hired as the CFO. The sport fishing boat industry in 1999 was booming and Davis Boatworks had more orders than their current manufacturing facility could handle. An expansion of manufacturing facility would cost then $3 million. They also needed an infusion of $2 million to improve their net working capital. In order to achieve this Carson Davis was contemplating selling part of his stake in the company to an investor. Most of Carson Davis’s personal wealth
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What are main elements in calculating the cost of capital? How does an increase in debt affect it? How do you identify an organization’s optimal cost of capital? • The main elements in calculating the cost of capital are cost of debt‚ cost of equity‚ preferred stock and common stock. • An increase in debt indicates a higher risk which can increase the required rate of return which raises the cost of capital. Higher debt can also accrue additional costs. • By mixing the permanent sources of funds
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Solution to Case 04 Determining the Cost of Capital Can One Size Fit All? Questions: 1. Why do you think Larry Stone wants to estimate the firm’s hurdle rate? Is it justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital? Please explain. Larry wants to estimate the firm’s hurdle rate because it would provide him with a yardstick with which to measure the feasibility of future investment proposals. The firm had thus far been using a ‘gut feel’ approach
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Coca-Cola Amatil Limited (CCL) is one of the largest companies in beverage industry in the Asia-Pacific region‚ and its shares are traded on the Australian Securities Exchange. In the following‚ we will estimate CCL’s cost of equity‚ cost of debt and weighted average cost of capital (WACC) separately‚ and detailed calculations will be shown in the Excel file. First we use historical beta to estimate the beta of Coca-Cola Amatil Limited. The conventional approach for estimating the beta of
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reducing manpower on the sorting line. Looking at the largest market - the United States - a food-processing firm will save $338K per year when it shifts its sorting line from manual to automated. This means that the labor savings can offset the cost of the machine in less than two years. Value Added to Company. The proposed acquisition will provide JBT with a solution for its declining operating profits (from 10.7% to 7.8% YOY). A main cause for this was an unfavorable mix of aftermarket products
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