Beruflich Dokumente
Kultur Dokumente
Topic: Estimating Cost of Capital of the Firm 1. What is the WACC and why is it important to estimate a firm’s cost
Session 8 of capital? Do you agree with Joanna Cohen’s WACC calculation?
Case: Nike, Inc.: Cost of Capital; BES # 15 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 DDM, 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?
Topic: Multifaceted Capital Investment Decisions
Session 9 Individual Case Analysis Assignment
Case: The Investment Detective BES # 18
1. How has Aurora Textile performed over the past four years? Be
prepared to provide financial ratios that present a clear picture of
Aurora’s financial condition.
2. List the factors affecting the textile industry. What do you think is
the state of the industry in the United States? How should you
incorporate the state of the textile industry into your analysis? Why
Topic: Capital Budgeting – Relevant Cash Flows
should anyone invest money in the industry?
Session 10 Group 1 and Group 9
3. What are the relevant cash flows for the Zinser investment? Using
Case: Aurora Textile Company; BES # 21
a 10% WACC and assuming a 36% tax rate, what do you get as the
NPV for the project? What are the value drivers in your analysis?
What do you estimate as the cost per pound for customer returns
under the Zinser alternative? (Hint: for a replacement decision,
analysts often find it helpful to prepare two sets of cash flows and two
NPVs—one for the status quo and one for the new machine.)
1. Assess the current financial health and recent financial performance
of the company. What strengths and/or weaknesses would you
highlight to Adeline Koh?
2. Forecast the firm’s financial statements for 2016 and 2017. What
will be the external financing requirements of the firm in those years?
Topic: Risk in Capital Budgeting Can the firm repay its loan within a reasonable period?
Session 11 Group 2 and Group 8 3. What are the key driver assumptions of the firm’s future financial
Case: Star River Electronics Ltd - BES # 26 performance? What are the managerial implications of those key
drivers? That is, what aspects of the firm’s activities should Koh
focus on especially?
4. What is Star River’s weighted-average cost of capital (WACC)?
What methods did you use to estimate WACC? What are the key
assumptions that especially influence WACC?
5. What are the free cash flows of the packaging-machine investment?
Should Koh approve the investment?