Generally Accepted Accounting Principles and Capital Assumption Factor

To relever the βe, we use the formula, βe = βu +(D/E)*(βu-βd). And the “Target D/E” was found by taking “Target D/V” divided by “1-Target D/V”. So we get the new βe, 1.3576. Then to get cost of equity, we use the CAPM formula, Re=Rf+β(EMRP), 11.7679%. Since we have get the cost of equity and cost of debt, we can determined the WACC, which is equal to Equity/Value*Cost of Equity+Debt/Value*Cost of Debt*(1-tax rate). In the end ,we arrived at 8.48%.

The comparable firm should exhibit similar business fundamentals in terms assets, business model, and risk. As such, we think that other major discount brokerages (Charles Schwab, Quick & Reilly, and Waterhouse) should be used as comparable firms to calculate equity and asset betas.

g. On December 31, 2012, the company completed the work on a contract for an out-of-province company for $7,900 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction.

Jefferson Animal Rescue is a private not-for-profit clinic and shelter for abandoned domesticated animals, chiefly dogs and cats. At the end of 2011, the organization had the following account balances:

Student Cases with Solutions to accompany Accounting & Auditing Research: Tools & Strategies (7th edition)

To calculate the cost of debt and equity for this project, we combined the risk-free rate with a risk premium based on the market risk premium and the riskiness of Southwest Airlines.

The Equity beta for the whole company and for the commercial division is calculated in the appendix.

Current market prices: Both McCaw and AT&T’s common shares are publicly traded. The market value of the equity can be summed with the book value of debt to give a rough estimate of the firm’s current value. The calculation that follows suggests a value for McCaw’s assets of about $10.5 billion. McCaw’s shares may be trading at a minority discount, because the CEO holds a controlling block of shares. To purchase a partial

Given the background of ACC and AirThread, do you think the acquisition is a good idea? Briefly explain your answer.

McCaw Cellular Communications is a cellular telephone pioneer in the United States is faced with a challenging decision regarding the future of the firm. The direction of the company will depend on whether CEOs of McCaw Cellular Communication and AT&T agree on an appropriate price of the company. In order to capture the value of McCaw Cellular Communications, three financial valuation models were developed while taking into account the trends in the industry and potential synergies from the take-over.

Determine the alpha and beta coefficients for this stock by running a simple linear regression. Use the file from part (1a) and regress the excess rate of return for the firm against the excess rate of return for the market. The “excess rate of return for the firm” data is the Input Y Range (dependent variable) and the “excess rate of return for the market” is the Input X Range (In Excel, the Data Analysis menu is under Tools (older version of Excel) or Data (newer version)). If you include the row with the variable name in your Input Y Range and your Input X Range, check the box LABELS, and Excel will automatically name your

If a firm operates in more than one industry, we used a simple average of the relevant costs of debt in order to calculate the total cost of debt for the specific firm. The grouping can be seen in table 3.

Beta is used in the capital asset pricing model (CAPM) which is a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market and beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. Stock A has a beta of 1.315, so theoretically stock A is 31.5% more volatile than the market. Stock B has a beta of -.557 which means the stocks are a commodity.

In the calculation there must be included some data which fluctuates constantly, not just flexible a certain percentage (OPEX), but constantly changes depending on micro and macro-economics and often a larger scale e.g. world consumption.

The company's capital structure weights used in calculating its weighted average cost of capital are shown in the following table.