Calculate Ndovu plc’s weighted average cost of capital, based on the CAPM computed cost of equity. Discuss the appropriateness of using the weighted average cost of capital calculated above as Ndovu plc’s discount rate.
Q: The two main approaches to equity analysis are the relative valuation models and…
A: ANSWER: Option C ;The discounted cash-flow models.
Q: Calculate Chim Inc. Weighted Cost of Capital based on following information of their capital sources…
A: Weighted cost of capital (WACC) is the average cost of capital raised through various sources of…
Q: The cost of equity capital for non-dividend paying stocks can be determined by ____. I. using the…
A: CAPM = Risk free Rate + Beta * Market Risk Premium As per Dividend Discount Model,Ke = (D1/P0) +…
Q: Using CAPM calculate its cost of equity. (Observe 2 decimal places)
A: A model that represents the relationship of the required return and beta of a particular asset is…
Q: What are the importance of the following financial ratios? Quick ratio. Debt to equity ratio.…
A: 1) Quick ratio= quick assets/ current liabilities Quick assets= current assets- inventory- prepaid…
Q: In calculation of weighted average cost of capital, is trades payable included?
A: Trade payable- Amount that is payable by a firm for goods purchased or services availed and it…
Q: Which of the following statement is most correct? The cost of capital for internal common stocks is…
A: “Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: How does the cost of equity based on internal funds differ from the cost of equity based on external…
A: Note: Since you have asked multiple questions, we will solve the first question for you. If you want…
Q: The factor payment for the use of financial capital (loans and equity investments) is called...…
A: The cost of finance: Equity and debt are two sources of capital for any business. Investors who…
Q: a. On the basis of the available data please, estimate the cost of equity. b. On the basis of the…
A: Cost of Equity: It is the firm's cost of raising equity funds from the investors for expanding their…
Q: eturn on equity b) return on assests c) return on capital
A: Ratio analysis is a method of analyzing a company's liquidity, profitability, and operational…
Q: M&M Proposition 2 states that the cost of a firm's common stock is directly related to the…
A: solution: As per M&M Proposition 2, the company’s Cost of equity is directly proportional to the…
Q: Capital gearing ratio indicates the relationship between A. assets and capital B. loans and…
A: Capital gearing ratio: Capital gearing ratio refers to the tool to analyze the capital structure of…
Q: Analyze the following statement with a suitable example: “The current cost adjustment helps to…
A: Inflation seems to be the rate at which prices rise over a specific period of time. Inflation is…
Q: Debt in the capital structure could be treated as if it were common stock in the weighted average…
A: Debt in the capital structure could be treated as if it were common stock in the weighted average…
Q: Which of the following regarding the weighted-average cost of capital is true? a. Taxes do not…
A: Since you have asked multiple questions, we will solve the first question for you as per policy.…
Q: . Which of the following statements regarding available-for-sale equity investments is true? a.…
A: As the name suggests the available-for-sale equity or securities are the equities that are held to…
Q: Two sources of capital of common equity are the issuance of new common stock (external) and retained…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Using the data above, calculate the following: • Cost of common equity using retained earnings •…
A: Cost of preference shares refers to the amount paid to the preference shareholders of the company in…
Q: The most popular method that firms use to calculate the cost of equity is ________. Group of answer…
A: The question is based on calculation of cost of equity. Cost of Equity for a firm is the expected…
Q: Which one of the following is the best indicator of long-term debt paying ability? A)Working…
A: Working capital turnover Working capital turnover is a ratio that measures how efficiently a company…
Q: w much is the cost of equity using the capital asset pricing model? b. How much is the cost of…
A: In this we have to determine the cost of equity using capital asset pricing model.
Q: n equity/capital O D.
A: To find the correct option as,
Q: or the ratio return on capital employed which of the following best describes capital employed : a-…
A: Ratio Analysis: This refers to the performance measurement of the business, in order to know the…
Q: Match the following A premium over and above the risk-free rate. ✓ The computed cost of capital…
A: Based on the defination we need to match the following.
Q: Using the value-to-book version of the residual income valuation approach, the value-to-book ratio…
A: Part 1: d. market value of common equity plus the present value of expected future residual income.
Q: Which one of the following ratios is relevant to assess long-term solvency? A. Current Ratio B.…
A: Since you have asked multiple question, we will solve the first question for you relating to long…
Q: The two main approaches of equity analysis are: a. The discounted cash flow models and the absolute…
A: Equity analysis is carried out to value a firm. The two main approaches to value equity are given…
Q: The appropriate benchmark for the return on equity is: A)the weighted average cost of capital.…
A: Total earning of the firm that is held in the hands of shareholders of the company.
Q: To identify the cost of equity, which models are better: The dividend growth model or CAPM-derived…
A: The question is based on the comparative study of the methods to derive cost of equity. Cost of…
Q: Based on the information below, what is the weighted average cost of capital of ABC Co.?
A: Cost of capital of a company is the return required by the capital providers of a company. All the…
Q: Is this a right formula? Market Value of Equity = Market capitalization - cash and investment +…
A: Market value of equity and market capitalization are both same and is calculated as number of shares…
Q: Calculate the following profitablity leverage management ratios a. Gross profit margin b. Net…
A: Profitability leverage management ratios a. Gross profit Margin: [Revenue-cost of goods…
Q: Describe two factors to be considered when calculating the weighted average cost of capital (WACC)…
A: The WACC is the sum of the costs of different sources of finance weighted by the weight of those…
Q: What is the statement of equity under paid-in capital?
A: Meaning of Paid-in capital:Paid-in capital represents the funds raised by the business through…
Q: alculation of which if the following metrics require knowledge of the company’s share price? Choose…
A: Dividend yield The dividend yield is the ratio of the current share price of a company and the…
Q: Which of the following is not true about the determination of components used to determine the…
A: Weighted average cost of capital (WACC) refers to the average cost that is paid by a company to…
Q: Which one of the following financial ratios measures a firm’s leverage: a. quick ratio b. current…
A: Leverage ratios are tools used in the financial analysis of a company. Leverage ratios measure how…
Q: Eaton Electronic Company's treasurer uses both the capital asset of common equity (also referred to…
A: Answer: Ki = 0.118 or 11.8%
Q: Cost of equity can be calculated using the SML approach or the dividend discount models. True or…
A: Cost of equity is the return that the company pays to its shareholders in exchange for providing the…
Q: The two main approaches to equity analysis are the relative valuation models and… a. The discounted…
A: Stock valuation is very useful to ascertain whether the stock is trading at premium or discount.…
Q: Illustrate how the debt-to-equity ratio impacts the return on equity?
A: A high debt-equity ratio can be acceptable in light of the fact that it shows a firm can without…
Q: e detail about The weighted average cost of capital up to the point when retained earnings…
A: Since retained profits are more costly than debt and preferred stock, the cost of capital will…
Q: For which capital component must you make a tax adjustment when calculating a firm's weighted…
A: This question is multiple choice question. We need to select the correct option among three options…
-
Calculate Ndovu plc’s weighted average cost of capital, based on the CAPM computed
cost of equity . -
Discuss the appropriateness of using the weighted average cost of capital calculated above as Ndovu plc’s discount rate.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
- Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?10. Diaz Camera Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Project B $5,000 Year Project A $6,000 4,000 3,000 .............. 3 3,000 8,000 a. Which of the two projects should be chosen based on the payback method? b. Which of the two projects should be chosen based on the net present value method? Assume a cost of capital of 10 percent. c. Should a firm normally have more confidence in answer a or answer b ?
- 5. Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project? a. The company has spent and expensed $1 million on R&D associated with the new project b. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year c. The new project is expected to reduce sales of one of the company's existing products by 5%8. Daleel plc is trying to introduce an improved method of assessing investment projects using discounted cash flow techniques. For this it has to obtain a cost of capital to use as a discount rate. The finance department has assembled the following information: – The company has an equity beta of 0.80, which may be taken as the appropriate adjustment to the average risk premium. The yield on risk-free government securities is 6.5 per cent and the historic premium above the risk-free rate is estimated at 5 per cent for shares. – The market value of the firm’s debt is thrice the value of its equity. – The cost of borrowed money to the company is estimated at 12 per cent (before tax shield benefits). – Corporation tax is 35 per cent. Assume: No inflation. Create an estimate of the weighted average cost of capital (WACC).2. A firm considers investing in a project. In Year 0 it needs to make an investment of $50,000. If it is expected to earn $50,000, $60,000, $70,000 in years 1,2,3 respectively, decide whether the firm should make the investment. Consider the required rate of return of 8%. You may use xis to make calculations. Make recommendations for both cases.
- 4. A company is considering investing in a project that requires a capital investment of $23,771 and is expected to generate cash inflows of $8,951 for each year for 6 years. The company has a minimum required rate of return 8%. State the net present value of the project rounded to the nearest one dollar. If the NPV is negative, put a "-" before your number.Better plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change?Better plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change? Hello.i have the solution you send me but i am trying to understand where did you get the calculations for in the worknotes tabel. I still cant calculate the IRR.i really dont understand how to do it. Can you help me please by using the numbers in the tabel so i can understand what is that you are adding or taking away please? I know how to calculate the NPV but not the IRR
- Better plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change? Hello.i have the solution you send me but i am trying to understand where did you get the calculations for in the worknotes tabel. I did my own calculation but i dont get the same answer. Could you show mw the calculation but not in excel please, i need the calculation by formula manuallyBetter plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change? Hello.i have the solution you send me but i am trying to understand where did you get the calculations for in the worknotes tabel. I still cant calculate the IRR.i really dont understand how to do it. Can you help me please by using the numbers in the tabel so i can understand what is that you are adding or taking away please? I know how to calculate the NPV but not the IRR. I have went over and over this IRR but i still dont understand how you calculate it using the pv and the npv.i dont wanna use excel.Better plc is comparing two mutually exclusive projects, whose details are given below.The company’s cost of capital is 12 per cent.Project A Project B£m £mYear 0 (150) (152)Year 1 40 80Year 2 50 80Year 3 60 50Year 4 60 40Year 5 80 30(a). Using the net present value method, which project should be accepted?(b). Using the internal rate of return method, which project should be accepted?(c). If the cost of capital increases to 20 per cent in year 5, would your advice change? Hello.i have the solution you send me but i am trying to understand where did you get the calculations for in the worknotes tabel. I did my own calculation but i dont get the same answer. For example for year 2 for project A you have 39.8597 How did you get to that without using the formula in excel. I need to write down the actual numbers. I got 22.3214 some im not sure how you got to that number. Can you help me please? Thank you