Assume that Amazon is also considering investing in the carwash business. In terms of capital structure, Amazon and Spffiy have a similar level of debt -- let's assume that their capital structure (% of debt vs. % of market value of equity) is identical. The Beta for Spffiy stock is 0.54. The Beta for Amazon's stock Is 1.81. Based on this information please answer the following: 1) Which company, Spiffy or Amazon, would you assume (based on the above) to have a lower WACC? Why? 2) Based on your answer to question 1, based on the NPV tool, to which company would investment in the carwash business look more attractive. 3) Does it make sense for bothSpiffy and Amazon to use their company wide WACC to evaluate an investment in the carwash business? Why or why not?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Assume that Amazon is also considering investing in the carwash business. In terms of capital structure, Amazon and Spffiy have a similar level of debt -- let's assume that their capital structure (% of debt vs. % of market value of equity) is identical. The Beta for Spffiy stock is 0.54. The Beta for Amazon's stock Is 1.81. Based on this information please answer the following:
1) Which company, Spiffy or Amazon, would you assume (based on the above) to have a lower WACC? Why?
2) Based on your answer to question 1, based on the
3) Does it make sense for bothSpiffy and Amazon to use their company wide WACC to evaluate an investment in the carwash business? Why or why not?
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