Relationship Between Wacc & Blackberry’s Value

Free Cash Flow = Sales Revenues – Operating Costs and Taxes – Required Investments in Operating Capital. Weighted Average Cost of Capital (WACC) is affected by market interest rates, market risk aversion, cost of debt, cost of equity, firm’s debt/equity mix, and firm’s business risk. Therefore, free cash flows and the weighted average cost of capital interact to determine a firm’s value by the following equation:

At the new WACC of 19%, the home appliance and agricultural machinery projects are valued based on their inherent levels of risk. The beta of the industry average home appliance project is 0.95, whereas the beta for the industry average agricultural machine project is calculated as 0.88. CAPM was then employed to find the cost of capital of each project. The cost of capital for the home appliance and agricultural machinery projects were found to be 10.4% and 9.92%, respectively (Appendix B). This analysis allows Star Company to allocate funds to projects that create returns greater than the industry cost of capital for each specific project.

According to the article “BlackBerry Posts Loss as Phones Go Unsold”, BlackBerry performs a poor performance. Business has a quarterly loss in 2013 for $965 million. The revenue had drop 45% that down to $1.57 billion from $2.86 billion compares with a year earlier. BlackBerry lost $248 million, or 47 cents a share, and analysts forecast 49 cents a share loss for the quarter ended August 31. The net loss is $235 million which excluding inventory charge and restructuring charges in the latest quarter. The cash position also down to $2.6 billion from $3.1 billion at quarter-end. Smartphone maker report a hefty operating loss of nearly $1 billion charge on inventory of unsold phones.

BlackBerry’s Market Share has been reduced to less than 1%. In an industry dominated by two major companies, BlackBerry is highly unlikely to gain a larger percentage of the market,

The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).

At first, WACC and CAPM was attempted to be used as a source of cost of capital. However, for WACC, there is no available proportion of debt and cost of debt for MW. For CAPM, no available data seems to support the acceptable

Moreover, let’s calculate the Weighted Average Cost of Capital (WACC). And in order to calculate it we need to know the capital structure of the company. Knowing the capital structure of the

In 2011, Apple increased their market share from 15.6% to 19% while RIM fell from 16% to 10.4% (Global Mobile Statistics, 2012). There are several different prospering smart phone brands that are negatively impacting RIM’s financial success. Not only are there a large number of competitors, but they are also well known companies such as Sony, Samsung, Google, and Apple to name a few. These are dominant companies in the electronics sector and all of which have large fixed costs so they must operate at economies of scale and produce near capacity. In turn, they have to sell all these products so that competition becomes more aggressive (Clegg pg.62). These companies all have the competitive advantage of offering their consumers another product lines whereas BlackBerry only offers phones and the new PlayBook which hasn’t been overly successful.

The following case analysis portraits the use of capital asset pricing model to compute the weighted average cost of capital for Marriott and each of its divisions. The flow of events below is following a string of different evaluations, each of which is assessed separately.

If company doesn’t have any debt, it means that WACC is equal to cost of equity.

WACC calculations entailed several different steps prior to using the actual WACC formula. First, by using CPP’s balance sheet we identified its D/E, by dividing Debt portion by the Equity portion arriving at 2.07, than we calculated D/V – 0.67 and E/V – 0.33. Afterwards, we used comparable firm Wackenhut’s capital structure for our analysis and applied it to our calculations. Wackenhut’s capital structure consisted of 92% equity and 8% debt. Subsequently, we went through the Beta unlevering and then levering process using above capital structure. To unlever, we multiplied given beta of 0.89 by the debt portion of capital structure 0.92, than we relevered the Beta_e=(1+D/E 2.07) * unlevered Beta 0.82 = 2.51. Next step consisted of calculating R_e=R_f+beta_e*MRP= 8.6%(given)+2.51*7.5% (given)=27.41%.

Kd (Wd), Ke (We) and Kp (Wp) are the costs (weights) associated, respectively, with the firm’s interest bearing debt,

BlackBerry is not just a phone, it is the power to do more and be more. The brand is the best available platform for mobilizing the business providing not just wireless email but business solutions to integrate mobile workers and important communications, information, business applications and back-end systems. In today‟s past faced life BlackBerry is the perfect tool to keep people connected to friends, family work as well as pursue their interests, all at the same time. BlackBerry products and services have been a significant contributor to the productivity enhancements ultimately reflected by the increase in profitability.

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

1.1 The definition of WACC Weighted average cost of capital(WACC), is a weighted-computational method of analyzing the cost of capital based on the whole capital structure of a firm. The result of WACC is the rate a firm use to monitor the application of the current assets because it represents the return the firm MUST get. For example this rate could be used as the discount rate of evaluating an investment, and maintaining the price of firm’s stock.