For firms responding in our survey that their discount rate represents their WACC, we model the discount rate, di, for firm i as WACC, wi, plus a constant, π0, and an idiosyncratic error, ɛi Why do firms use discount rates above their cost of financial capital? Given the above ...
Questions on Discount Rate What is Beta in Finance: Explained by Graduate Tutor What are the drawbacks of using book values in computing the weights of capital? Are country risk premiums a one-time task or does it need to be revised frequently? Which method of estimating the cost...
What is the calculation of Before Tax (Equity) Cash Flow? Provide examples. What is the net present value of a project with the following cash flows if the discount rate is 11%? Year 0 Cash Flow: -$675 Year 1 Cash Flow: $306 Year 2 Cash Flow: $290 Year...
What is a progressive tax structure and the economic rationale for it? Why do some stocks trade at a very high P/E ratio than peers? What kind of developments would bring them down? Suggest some reasons why the capitalization rate might not remain constant. Why might it become ...
The issue at hand is finding the correct costs of debt and equity in order to find an accurate calculation of WACC. Cohen used the 20-year yield on U.S. Treasuries as the risk free rate‚ which we found to be the correct figure given that Nike Inc. debt was valued ov...
With a tax rate of 40%, what is the impact on NI and a firm's amount of cash from a decrease of $300 in Depreciation Expense? Why might the use of the equity method not lead to full disclosure in the financial statements? Why does...
b. What happens to NPV as a firm's WACC increases? How do I use 10% cost of capital in computations, and compute good results, and poor results, in npv? Calculate real option npv. What is the reinvestment rate assumption, and how does it affect the NPV versus IRR conflict? Explain....
Explain why the cost of capital is referred to as the "hurdle" rate in capital budgeting. Why would managers prefer issuing debt to issuing equity? Why is the marginal tax bracket important? Why is EBIT generally considered to be independent of financial leverage; Why might EBIT...
Cost of debt=Interest expenseTotal debt×(1−T)where:Interest expense=Int. paid on the firm’s current debtT=The company’s marginal tax rateCost of debt=Total debtInterest expense×(1−T)where:Interest expense=Int. paid on the firm’s current debtT=The company’s marginal tax...
WACC=(EV×Re)+(DV×Rd×(1−Tc))where:E=Market value of the firm’s equityD=Market value of the firm’s debtV=E+DRe=Cost of equityRd=Cost of debtTc=Corporate tax rateWACC=(VE×Re)+(VD×Rd×(1−Tc))where:E=Market value of the firm’s equityD=Market value of ...