Description Define WACC and what components comprise WACC. You are to complete the WACC for your ...

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Description Define WACC and what components comprise WACC. You are to complete the WACC for your company. You should include your calculation for CAPM, after-tax debt rate, weights for the financing based on current trading value. You should show each component in Excel with formulas and do not forget that Yahoo finance has much of this information along with Bank Rate.com and the 10-K.(30 points) Define capital budgeting. What makes a good decision criteria for capital budgeting?Define IRR and NPV.Standard Grounds Co. is presented with the following two mutually exclusive projects.The required return is 9%. (10 Points) For each problem, provide a 1-2 sentence explanation of each answer, which will have points for each question. What       is the IRR, NPV, payback and indifferent point for each project?Which, if either, of the projects       should the company accept? Sumo Corp. has come up with a new product, the Exacter Freezer.Sumo paid $167,000 for the marketing survey to determine the viability of the product. It is felt that the product will generate sales of $575,000 per year.The fixed cost associated with the project will be $162,000 per year, and the variable costs will amount to 14.5% of sales.The equipment necessary for production will cost $650,000 and will be depreciated on straight-line over five years with no residual value.Sumo is in a 20% tax return and the required rate of return is 26%.Calculate the payback period, NPV and IRR as well as the indifference point.Keep in mind that you will need to build a simple income statement to determine after-tax net income and then derive quick cash flow to calculate the requirements. (10 points) What are the three view of market efficiency and which one do you believe in?A stock has an expected return of 13% with a beta of 1.25 and a risk free rate of 2.6%.What is the risk-adjusted return on equity? (10 points) 1 attachments Slide 1 of 1 attachment_1 attachment_1 UNFORMATTED ATTACHMENT PREVIEW Time Value of Money Rate Periods How Often PV PVA FV 11.00% 15.00% 8.00% 26 25 1 1 1 1 Payment $12,000.00 FV $580,000,000.00 PV $38,461,883.24 $ $ $ $ 10,823.02 29,411.69 128,928.43 72,388.42 $ $ $ $ 70,985.52 72,943.94 73,996.85 74,728.74 $394,632,000.00 $77,569.79 $ $ $ $ 11,582.60 25,678.44 37,347.22 77,569.79 11.6% 9.59% $365,400,000.00 $ $ $ $ 8,503.60 25,520.93 346,796.33 935,935.14 FVA RATE 8.00% 9.59% 1 7 25 1 $0.00 $1,718 $905.00 $ $ $ $ 18,866.84 81,456.34 360,262.21 2,553,516.21 PERIOD Perpetuity infinite series of equal payments PV=C/r C-Current Return r-Rate C r Perpetuity Amortization Table Loan Amount Rate on the Loan Length of Loan Periods $23,000 6.0% 15 12 Payment Total Pmts Total Int $194.09 $34,935.67 $11,935.67 Period Beg Bal 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 $23,000 $22,921 $22,841 $22,762 $22,681 $22,601 $22,520 $22,438 $22,356 $22,274 $22,191 $22,108 $22,024 $21,940 $21,856 $21,771 $21,686 $21,600 $21,514 $21,428 $21,341 $21,253 $21,166 $21,077 $20,989 $20,900 $20,810 $20,720 $20,629 $20,538 $20,447 $20,355 $20,263 $20,170 $20,077 Pmt Prin Pmt $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $79.09 $79.48 $79.88 $80.28 $80.68 $81.08 $81.49 $81.90 $82.31 $82.72 $83.13 $83.55 $83.96 $84.38 $84.81 $85.23 $85.66 $86.09 $86.52 $86.95 $87.38 $87.82 $88.26 $88.70 $89.14 $89.59 $90.04 $90.49 $90.94 $91.39 $91.85 $92.31 $92.77 $93.24 $93.70 Int pmt $115.00 $114.60 $114.21 $113.81 $113.41 $113.00 $112.60 $112.19 $111.78 $111.37 $110.96 $110.54 $110.12 $109.70 $109.28 $108.86 $108.43 $108.00 $107.57 $107.14 $106.70 $106.27 $105.83 $105.39 $104.94 $104.50 $104.05 $103.60 $103.15 $102.69 $102.24 $101.78 $101.31 $100.85 $100.38 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 $19,983 $19,889 $19,794 $19,699 $19,604 $19,508 $19,411 $19,314 $19,217 $19,119 $19,020 $18,921 $18,822 $18,722 $18,621 $18,520 $18,419 $18,317 $18,214 $18,111 $18,008 $17,904 $17,799 $17,694 $17,588 $17,482 $17,375 $17,268 $17,160 $17,052 $16,943 $16,834 $16,724 $16,614 $16,503 $16,391 $16,279 $16,166 $16,053 $15,939 $15,825 $15,710 $15,594 $15,478 $15,361 $15,244 $15,126 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $94.17 $94.64 $95.12 $95.59 $96.07 $96.55 $97.03 $97.52 $98.00 $98.49 $98.99 $99.48 $99.98 $100.48 $100.98 $101.49 $101.99 $102.50 $103.02 $103.53 $104.05 $104.57 $105.09 $105.62 $106.15 $106.68 $107.21 $107.75 $108.28 $108.83 $109.37 $109.92 $110.47 $111.02 $111.57 $112.13 $112.69 $113.26 $113.82 $114.39 $114.96 $115.54 $116.12 $116.70 $117.28 $117.87 $118.46 $99.92 $99.45 $98.97 $98.50 $98.02 $97.54 $97.06 $96.57 $96.08 $95.59 $95.10 $94.61 $94.11 $93.61 $93.11 $92.60 $92.09 $91.58 $91.07 $90.56 $90.04 $89.52 $88.99 $88.47 $87.94 $87.41 $86.88 $86.34 $85.80 $85.26 $84.72 $84.17 $83.62 $83.07 $82.51 $81.96 $81.39 $80.83 $80.26 $79.70 $79.12 $78.55 $77.97 $77.39 $76.81 $76.22 $75.63 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 $15,008 $14,889 $14,769 $14,649 $14,528 $14,407 $14,285 $14,162 $14,039 $13,915 $13,790 $13,665 $13,539 $13,413 $13,286 $13,158 $13,030 $12,901 $12,771 $12,641 $12,510 $12,379 $12,247 $12,114 $11,980 $11,846 $11,711 $11,576 $11,439 $11,302 $11,165 $11,027 $10,888 $10,748 $10,608 $10,467 $10,325 $10,182 $10,039 $9,895 $9,751 $9,605 $9,459 $9,313 $9,165 $9,017 $8,868 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $119.05 $119.64 $120.24 $120.84 $121.45 $122.05 $122.66 $123.28 $123.89 $124.51 $125.14 $125.76 $126.39 $127.02 $127.66 $128.30 $128.94 $129.58 $130.23 $130.88 $131.54 $132.19 $132.85 $133.52 $134.19 $134.86 $135.53 $136.21 $136.89 $137.57 $138.26 $138.95 $139.65 $140.35 $141.05 $141.75 $142.46 $143.17 $143.89 $144.61 $145.33 $146.06 $146.79 $147.52 $148.26 $149.00 $149.75 $75.04 $74.44 $73.85 $73.24 $72.64 $72.03 $71.42 $70.81 $70.19 $69.57 $68.95 $68.33 $67.70 $67.06 $66.43 $65.79 $65.15 $64.50 $63.86 $63.21 $62.55 $61.89 $61.23 $60.57 $59.90 $59.23 $58.56 $57.88 $57.20 $56.51 $55.82 $55.13 $54.44 $53.74 $53.04 $52.33 $51.62 $50.91 $50.20 $49.48 $48.75 $48.03 $47.30 $46.56 $45.83 $45.08 $44.34 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 $8,718 $8,568 $8,416 $8,264 $8,112 $7,958 $7,804 $7,649 $7,493 $7,336 $7,179 $7,021 $6,862 $6,702 $6,541 $6,380 $6,218 $6,055 $5,891 $5,726 $5,561 $5,394 $5,227 $5,059 $4,891 $4,721 $4,550 $4,379 $4,207 $4,034 $3,860 $3,685 $3,510 $3,333 $3,156 $2,977 $2,798 $2,618 $2,437 $2,255 $2,072 $1,889 $1,704 $1,518 $1,332 $1,144 $956 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $150.50 $151.25 $152.01 $152.77 $153.53 $154.30 $155.07 $155.84 $156.62 $157.41 $158.19 $158.98 $159.78 $160.58 $161.38 $162.19 $163.00 $163.81 $164.63 $165.46 $166.28 $167.11 $167.95 $168.79 $169.63 $170.48 $171.33 $172.19 $173.05 $173.92 $174.79 $175.66 $176.54 $177.42 $178.31 $179.20 $180.10 $181.00 $181.90 $182.81 $183.73 $184.64 $185.57 $186.50 $187.43 $188.37 $189.31 $43.59 $42.84 $42.08 $41.32 $40.56 $39.79 $39.02 $38.24 $37.46 $36.68 $35.89 $35.10 $34.31 $33.51 $32.71 $31.90 $31.09 $30.27 $29.45 $28.63 $27.80 $26.97 $26.14 $25.30 $24.45 $23.60 $22.75 $21.90 $21.03 $20.17 $19.30 $18.43 $17.55 $16.67 $15.78 $14.89 $13.99 $13.09 $12.18 $11.28 $10.36 $9.44 $8.52 $7.59 $6.66 $5.72 $4.78 177 178 179 180 181 182 183 184 185 186 187 188 189 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 $767 $576 $385 $193 ($0) #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $190.25 $191.20 $192.16 $193.12 #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $3.83 $2.88 $1.93 $0.97 #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! #NUM! $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 23000 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $194.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $79.09 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 $115.00 End Bal $23,000 $22,920.91 $22,841.43 $22,761.55 $22,681.27 $22,600.59 $22,519.51 $22,438.02 $22,356.12 $22,273.81 $22,191.10 $22,107.96 $22,024.42 $21,940.45 $21,856.07 $21,771.26 $21,686.03 $21,600.37 $21,514.29 $21,427.77 $21,340.82 $21,253.44 $21,165.62 $21,077.36 $20,988.66 $20,899.52 $20,809.93 $20,719.89 $20,629.40 $20,538.46 $20,447.07 $20,355.22 $20,262.91 $20,170.13 $20,076.90 $19,983.19 $19,889.02 $19,794.38 $19,699.27 $19,603.67 $19,507.61 $19,411.06 $19,314.03 $19,216.51 $19,118.50 $19,020.01 $18,921.02 $18,821.54 $18,721.56 $18,621.08 $18,520.10 $18,418.61 $18,316.62 $18,214.12 $18,111.10 $18,007.57 $17,903.52 $17,798.95 $17,693.86 $17,588.24 $17,482.09 $17,375.42 $17,268.21 $17,160.46 $17,052.18 $16,943.35 $16,833.98 $16,724.06 $16,613.59 $16,502.58 $16,391.00 $16,278.87 $16,166.18 $16,052.92 $15,939.10 $15,824.71 $15,709.74 $15,594.20 $15,478.09 $15,361.39 $15,244.11 $15,126.25 $15,007.79 $14,888.74 $14,769.10 $14,648.86 $14,528.01 $14,406.57 $14,284.51 $14,161.85 $14,038.57 $13,914.68 $13,790.16 $13,665.03 $13,539.26 $13,412.87 $13,285.85 $13,158.19 $13,029.90 $12,900.96 $12,771.38 $12,641.15 $12,510.27 $12,378.73 $12,246.54 $12,113.68 $11,980.16 $11,845.98 $11,711.12 $11,575.59 $11,439.38 $11,302.49 $11,164.91 $11,026.65 $10,887.70 $10,748.05 $10,607.70 $10,466.65 $10,324.90 $10,182.44 $10,039.26 $9,895.37 $9,750.76 $9,605.43 $9,459.37 $9,312.58 $9,165.05 $9,016.79 $8,867.79 $8,718.04 $8,567.54 $8,416.29 $8,264.29 $8,111.52 $7,957.99 $7,803.70 $7,648.63 $7,492.78 $7,336.16 $7,178.76 $7,020.56 $6,861.58 $6,701.80 $6,541.22 $6,379.84 $6,217.65 $6,054.65 $5,890.84 $5,726.21 $5,560.75 $5,394.47 $5,227.35 $5,059.40 $4,890.61 $4,720.98 $4,550.50 $4,379.16 $4,206.97 $4,033.92 $3,860.00 $3,685.21 $3,509.55 $3,333.01 $3,155.59 $2,977.28 $2,798.08 $2,617.98 $2,436.99 $2,255.08 $2,072.27 $1,888.55 $1,703.90 $1,518.34 $1,331.84 $1,144.41 $956.05 $766.74 $576.49 $385.28 $193.12 ($0.00) #NUM! #NUM! #NUM! #NUM! 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Bond Valuation Rate Periods How Often Payment FV PV Rate Periods How Often Payment FV PV PV 15.00% 20 1 $1,000.00 $61.10 PV 9.00% 8 1 $1,000.00 $501.87 Bond Rate Periods How Often Payment FV PV PVBond 12.00% 15 2 $80 $1,000 $724.70 Bond Rate Periods How Often Payment FV PV PVBond 14.00% 0.5 2 $90 $1,000 $976.64 Bond PVBond PVA 15.00% 20 1 $70.00 $438.15 PVA 9.00% 8 1 $70.00 Total $499.25 Total $387.44 $889.30 PVBond 6.00% 15 2 $70 $1,000 $1,098.00 PVBond 7.00% 15 1 $80 $1,000 $655.88 PVBond Rate Periods How Often Payment FV PV 9.00% 12 1 $70 $1,000 $856.79 9.00% 20 1 $100 $1,000 $1,091.29 Bond Rate Periods How Often Payment FV PV PVBond 11.00% 12 1 $100 $1,000 $935.08 PVBond 11.00% 12 1 $120 $1,000 $1,064.92 Bond Rate Periods How Often Payment FV PV PVBond 9.40% 10.5 1 $86 $1,000 $945.75 Bond Rate Periods How Often Payment FV PV PVBond 15.00% 20 1 $70 $1,000 $499.25 Bond Rate Periods How Often Payment FV PV PVBond 9.00% 8 1 $70 $1,000 $889.30 Stock Valuation - 4 Methods Common Stock Uneven Dividends Rate Periods How Often Payment FV PV DCF or Supernormal Growth PV 8.00% 1 1 PV 8.00% 2 1 $3.50 $3.24 $3.65 $3.13 PV 8.00% 3 1 $43.35 $34.41 Stock Value $40.78 Common Stock Preferred Stock/Even Dividend C $3.50 r 8.5% Perpetuity $41.18 P0=D0(1+g)/(R-g) Dividend Growth Model Given Present Div D0 g R P0=D1/(R-g) $3.50 4.0% 12.0% my conrtol P0 - D0 $45.50 GLW EBIT Depr& Amort EBITA 2018 Fcst Electronics Multiple EBITA Amount Shares outstanding Share Price Est 2018 1598 1351 2949 10.46 30846.54 858 35.95 $ Given Future Div D1 g R P0 - D1 $3.64 4.0% 12.0% $45.50 Multiples Approach $ 2017 1630 1158 BS 2788 10.46 Elecetronics (general)(Multiple sheet) 29162.48 858 33.99 Practice Problem 1 Rate Periods How Often Payment FV PV Practice Problem 2 C r Perpetuity PV 12.00% 1 1 PV 12.00% 2 1 PV 12.00% 3 1 $1.75 $1.56 $1.90 $1.51 $72.00 $51.25 Stock Value $54.33 $6.80 8.0% $85.00 Practice Problem 3 P0=D0(1+g)/(R-g) Given Present Div D0 $1.95 g 5.0% R 14.0% my conrtol P0=D1/(R-g) Given Future Div D1 $2.05 g 5.0% R 14.0% P0 - D0 P0 - D1 $22.75 $22.75 Practice Problem 4 P0=D0(1+g)/(R-g) Given Present Div D0 $3.65 g 5.5% R 14.0% my conrtol P0=D1/(R-g) Given Future Div D1 $3.85 g 5.5% R 14.0% P0 - D0 $45.30 P0 - D1 Practice Problem 5 Rate Periods How Often Payment FV PV PV 14.00% 1 1 PV 14.00% 2 1 PV 14.00% 3 1 $1.94 $1.70 $2.00 $1.54 $2.12 $1.43 $45.30 $4.66 Practice Problem 6 Rate Periods How Often Payment FV PV PV 13.00% 1 1 PV 13.00% 2 1 PV 13.00% 3 1 PV 13.00% 4 1 $10.00 $8.85 $14.00 $10.96 $18.00 $12.47 $22.00 $13.49 or Supernormal Growth Constant Dividend Constant Growth SJM EBIT 1036 Depr& Amort 413 EBITA 2018 Fcst 1449 Electronics Multiple 11.69 EBITA Amount 16938.81 Shares outstanding 858 Share Price Est $ 19.74 current share price $ 115.30 $ difference $ 33.29 113.31 share price at end of 2018 D0 g R P0 - D0 $2.12 7.0% 14.0% $32.34 Stock Value $37.01 Stock Value $45.78 Small Business Valuation or Discounted Cash Flow Method 1 - Discounted Cash Flow Rate of Return Official EBIT Add back Owner's Salary Less More reasonable salary Add back depreciation Add back personal expenses Estimated EBITDA Less new equipment purchases Less inventory investment Free Cash flow DCF 28% Year 1 Year 2 Year 3 $128,350 $192,475 $230,290 $110,000 $110,000 $110,000 ($60,000) ($60,000) ($60,000) $30,000 $30,000 $30,000 $20,000 $20,000 $20,000 $228,350 $292,475 $330,290 ($160,000) ($65,000) $3,350 $292,475 $330,290 $2,617 $178,513 $157,495 Proceeds from sale Less debt to be paid - Last Bal Sh Less capital gains taxes - 20% Value of Company Shares outstanding Value per share Rate of return reason? Growth rate reason? Method 2 - Equity Method Assets Liabilities Equity Amount $825,000 $375,000 $450,000 Method 3 - Liquidation Method Accounts Receivable Inventory Fixed Assets - Net Value Amount Percentage % of Amount $225,000 50.0% $112,500 $150,000 15.0% $22,500 $325,000 10.0% $32,500 $167,500 Method 4 - Multiples approach EBITDA Idustry EBITDA multiplier $228,350 3.5 $799,225 Growth Rate Year 4 Year 5 $150,325 $205,050 $110,000 $110,000 ($60,000) ($60,000) $30,000 $30,000 $20,000 $20,000 $250,325 $305,050 $250,325 $93,253 $305,050 $88,781 1.8% Terminal Value $17,431,428.57 $5,073,213 $5,593,872 ($250,000) ($1,118,774.46) $4,225,098 Long run Annualized Returns Prublicly traded firms Private firms Angel Investors Venture Capitalists 12-18% 20-35% 20-50% 35-80% Method 1 - Discounted Cash Flow Rate of Return 13% Year 1 Forecasted EBIT Add back depreciation & Amortization Estimated EBITDA Less Fcstd equipment purchases Free Cash flow DCF Proceeds from sale Shares outstanding Value per share Rate of return reason? Growth rate reason? Year 2 $1,598 $1,351 $2,949 ($1,200) $1,749 $1,548 Year 3 $1,702 $1,439 $3,141 ($1,200) $1,941 $1,520 $1,804 $1,525 $3,329 ($1,200) $2,129 $1,475 Growth Value 1.7% Year 4 Year 5 $1,876 $1,586 $3,462 ($1,200) $2,262 $1,387 Terminal Value $1,941.5 $1,642 $3,583 ($1,200) $2,383 $1,294 140194 $76,092 Prublicly traded firms Private firms Angel Investors Venture Capitalists 12-18% 20-35% 20-50% 35-80% Net Present Value (NPV) & Internal Rate of Return (IRR) 0 1 2 3 4 5 6 7 IRR 13% NPV Payback A B -145000 -74000 -6000 46000 Project A Project B -145000 71000 68000 52000 13.00% Payback Indiff 16.02% $6,304.82 2.12 Year NBV Net Income Depreciation Cash Outflow / Inflow 0 180 -180 AAR 34.7% IRR NPV 26.0% $13.77 1 135 30 2 90 43 3 45 40 4 0 12 45 75 45 88 45 85 45 57 Problem 1 Payback 0 1 2 3 4 5 6 7 Project A Project B -5800 -2800 2800 1200 2700 1050 2600 750 4100 950 A -5800 -3000 -300 2300 B -2800 -1600 -550 IRR 11% NPV 11.00% Payback Indiff 49.34% 35.48% $3,167.39 2.12 ($742.96) 16.38% $277.00 2.73 ($742.93) Payback Project A Project B -15000 -15000 6800 7470 7380 7640 4900 3810 0 1 2 3 4 5 6 7 IRR 25% NPV B -15000 -7530 14.01% 25.00% ($1,862.40) ($1,746.94) Payback Indiff 2.17 2.00 9.61% ($3,794.29) ($3,634.95) Project A Project B -5500 -13000 1025 5050 1025 5050 1025 5050 1025 5050 1025 5050 1025 1025 0 1 2 3 4 5 6 7 IRR 13.80% A -15000 -8200 -820 15% 7.13% 27.16% NPV 15.00% ($1,074.41) $3,415.99 Payback Indiff 5.37 3.57 43.79% ($2,571.47) ($3,229.29) Payback A B -5500 -13000 -4475 -7950 -3450 -2900 -2425 -1400 -375 90 31.25 Project Analysis 1. Depreciation Cost Years Depreciation Expense 5.00 $1,300,000 $6,500,000 2. Net Income Forecast Units Income Statement Sales units*sales price Var Cost units * var cost Fixed Cost -1.9M Depr D4 Taxes (S-VC-FC-Depr) * Inc Tax Net Income 3. Cash flow calculation & Project determination OCF 0 Equipmemt ($6,500,000) Initial WC ($1,800,000) EBIT Depr Taxes OCF NPV @ 16% IRR ($8,300,000) ($953,569) 10.44% 1 17,500 2 18,500 $8,312,500 ($4,375,000) ($1,900,000) ($1,300,000) ($147,500) $590,000 $8,787,500 ($4,624,000) ($1,900,000) ($1,300,000) ($192,700) $770,800 1 $737,500 $1,300,000 ($147,500) $1,890,000 2 $962,500 $1,300,000 ($192,500) $2,070,000 iation Expense 3 19,500 4 20,500 5 21,500 $9,262,500 ($4,875,000) ($1,900,000) ($1,300,000) ($237,500) $950,000 $9,737,500 ($5,120,000) ($1,900,000) ($1,300,000) ($283,500) $1,134,000 $10,212,500 ($5,375,000) ($1,900,000) ($1,300,000) ($327,500) $1,310,000 3 $1,187,500 $1,300,000 ($237,500) $2,250,000 4 $1,412,500 $1,300,000 ($282,500) $2,430,000 5 $1,637,500 $1,300,000 ($327,500) $2,610,000 CAPM - Capital Asset Pricing Model Risk Free Rate Mkt Rate Beta Rm-Rf = Risk Premium Er = Rf + (Rm - Rf)*b Weighted Average Cost of Capital - WACC A - Current Weight Ve Vp Vd B - Cost of Equity Risk Free Rate GLW Public Companies Mkt Value Weight $27,483,000,000 76.8% value equity $2,300,000,000 6.4% balance sheet $6,000,000,000 16.8% $35,783,000,000 Mkt Return 2.97% 7.90% C - Cost of Preferred Stock Coupon Payment Trade Price D - Cost of Debt Int Exp./Total Debt Beta Er = Rf + (Rm - Rf)*b 1.23 9.0% Cost of Pref 4.25% YIELD 3.26% Tax rate 29.1% AT - Cost of Debt 2.31% E - Weighted Average Cost of Capital CoC Re Rp Rd WACC Weight WACC 9.0% 76.8% 4.3% 6.4% 2.3% 16.8% 6.91% 0.27% 0.39% 7.6% Weighted Average Cost of Capital - WACC A - Current Weight Ve Vp Vd B - Cost of Equity Risk Free Rate sjm Public Companies Mkt Value Weight $27,483,000,000 76.8% value equity $2,300,000,000 6.4% balance sheet $6,000,000,000 16.8% $35,783,000,000 Mkt Return 2.97% 7.90% C - Cost of Preferred Stock Coupon Payment Trade Price D - Cost of Debt Int Exp./Total Debt Beta Er = Rf + (Rm - Rf)*b 1.23 9.0% Cost of Pref 4.25% YIELD 3.26% Tax rate 29.1% AT - Cost of Debt 2.31% E - Weighted Average Cost of Capital CoC Re Rp Weight WACC 9.0% 76.8% 4.3% 6.4% 6.91% 0.27% Rd WACC 2.3% 16.8% 0.39% 7.6% Purchase answer to see full attachment User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.