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    Cost Of Debt Case Study

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    Contents 1.0 OVERVIEW OF COST OF CAPITAL 2 2.0 COST OF LONG-TERM DEBT 3 2.1 How to Calculate Before Tax Cost of Debt and After-tax cost of debt. 4 3.0 COMMON STOCK 6 4.0 COST OF PREFERRED STOCK 8 4.1 Characteristic of preferred stock 8 5.0 WEIGHTED AVERAGE COST OF CAPITAL 11 6.0 CONCLUSION 14 1.0 OVERVIEW OF COST OF CAPITAL Cost of capital is the rate of return when a firm earn on the projects invest to maintain the market value of its stock. The cost of capital depends on the how the

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    research of Pepsico, I have calculated the cost of capital. A firm's cost of capital is imperative because it represents the funds used to finance the firm's assets and operations. First you have to estimate the cost of capital in order to minimize it. In estimating the cost of capital, you first have to find the cost of each capital component and then combine the component costs to find the weighted average cost of capital. First, I calculated the cost of debt. Pepsico's bond consisted of 7 5/8

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    obligation. Throughout the course of the paper I will illustrate some of the items that assist with this decision process. The items that are covered in this paper are the cost of equity, the cost of debt, and the weighted average cost of capital. All three of these items assist in the decision process. Most companies use Capital Asset Pricing Model (CAPM), which is a model that is utilized to calculate the required rate of return. The main reason for utilizing this model is that the rate of return

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    Cost of Capital

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    help explain the capital costs generated by corporations when raising funds to support company growth and future market share. These costs incurred are known as capital costs which can be estimated through cost of equity by using the dividend growth model approach or the security line approach. Each method will be discussed including their advantages and disadvantages. This paper will also explain the cost of debt, cost of preferred stock, and the weighted average cost of capital with tax adjustments

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    Cost of Capital for Marriott Mentioned Tables Not Included Objective: 1) Calculate the divisional and the company cost of capital and explain the calculation. 2) Evaluate Marriott's use of company cost-of-capital rate for the individual divisions. Cost of Capital for Lodging Division can be expressed as CC = We*Ce + Wd*Cd. For the weights of debt and equity (We and Wd), the 1988 target-schedule rates of debt-to-assets and debt-to-equity were used as the only measures available in

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    tax shield

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    Another important component of the corporate tax system is the treatment of losses. A corporation that loses money in a particular year experiences what is known as a net operating loss (NOL). No corporate tax is due when a company has a NOL because they do not have profits (e.g., total income less expenses is negative). In addition, a NOL can be “carried back” and deducted from up to two prior years’ taxable income. The corporation is then eligible for a refund equal to the difference between previously

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    Marriott

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    In 1987, Marriott was focused on its cost of capital. The corporation was split into three divisions. The divisions were lodging, restaurants, and contract services. Marriott was also interested in focusing on four main points of business. They decided to focus on managing instead of owning hotel assets, invest in projects that increased shareholder value, optimize the use of debt in the capital structure and repurchase undervalued shares. They measured these new strategies and how they would affect

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    Long-Term Financing

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    its operations, and to achieve their business objectives, the company will require additional long-term capital financing. Long-term financing involves debt or equity instruments with greater than one-year maturities, and the cost of this long-term capital can be calculated using either the Capital Asset Pricing Model (CAPM) or Discounted Cash Flows (DCF) Model. This report will consider the costs and characteristics of various long-term debt and equity financial instruments, and discuss financial

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    Nike Inc.

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    really worth it. The weighted average cost of capital (WACC) is a percentage of income that a company is liable to pay as a cost of debt and equity of fund the assets of the company usually annually. This means that the company must earn at least that much money every year to be able to pay for the usage of their assets and have disposable income in addition to that as profit. WACC is calculated by multiplying the relative weights of each component of the capital structure – the cost of debt and equity

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    Option Pricing Models

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    from http://www.investopedia.com/university/dcf/dcf3.asp Put option. (2011, May 22). In Wikipedia, The Free Encyclopedia. Retrieved 02:44, May 25, 2011, from http://en.wikipedia.org/w/index.php?title=Put_option&oldid=430306749 Weighted average cost of capital. (2011, April 2). In Wikipedia, The Free Encyclopedia. Retrieved 00:28, May 25, 2011, from http://en.wikipedia.org/w/index.php?title=Weighted_average_cost_of_capital&oldid=422017854

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