{"id":6435,"date":"2023-02-28T22:45:38","date_gmt":"2023-02-28T22:45:38","guid":{"rendered":"https:\/\/www.goodacademic.com\/blog\/questions\/part-3-long-term-working-capital-considerations\/"},"modified":"2023-03-02T10:12:54","modified_gmt":"2023-03-02T10:12:54","slug":"long-term-working-capital-considerations","status":"publish","type":"questions","link":"https:\/\/www.goodacademic.com\/blog\/questions\/long-term-working-capital-considerations\/","title":{"rendered":"Long-Term Working Capital Considerations"},"content":{"rendered":"
\n Learning Goal: <\/b>I’m working on a business question and need the explanation and answer to help me learn.<\/p>\n

PART 3: LONG-TERM WORKING CAPITAL CONSIDERATIONS: CAPM, STOCK VALUATION, AND PROJECT EVALUATION TOOLS (1\u00e2\u20ac\u201c2 PAGES, PLUS CALCULATIONS IN EXCEL)<\/h3>\n
    \n
  • CAPM and Required Return: <\/strong>The company has a beta of 1.1, and the closest competitor has a beta of 0.30. The required return on an index fund that holds the entire stock market is 11%. The risk-free rate of interest is 4.5%. By how much does your company\u00e2\u20ac\u2122s required return exceed your competitor\u00e2\u20ac\u2122s required return?<\/li>\n
  • Constant Growth Valuation:<\/strong> The company is expected to pay a $1.80 per share dividend at the end of the year (i.e., D1 = $1.80). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 10%. What is the stock\u00e2\u20ac\u2122s current value per share?<\/li>\n
  • Nonconstant Growth Valuation: <\/strong>The company recently paid a dividend, D0, of $2.75. It expects to have nonconstant growth of 18% for 2 years followed by a constant rate of 6% thereafter. The firm\u00e2\u20ac\u2122s required return is 12%.\n
      \n
    • How far away is the horizon date?<\/li>\n
    • What is the firm\u00e2\u20ac\u2122s horizon, or continuing, value?<\/li>\n
    • What is the firm\u00e2\u20ac\u2122s intrinsic value today, P0?<\/li>\n<\/ul>\n<\/li>\n
    • Weighted Average Cost of Capital:<\/strong> The company has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is P0 = $22.00. The last dividend was D0 = $2.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?<\/li>\n
    • Capital Budgeting Criteria: <\/strong>The company has an 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:<\/li>\n<\/ul>\n

      \"USW1_WMBA_6070_Week08_Assignment.png\"<\/p>\n

        \n
      • What is each project\u00e2\u20ac\u2122s NPV?<\/li>\n
      • What is each project\u00e2\u20ac\u2122s IRR?<\/li>\n
      • What is each project\u00e2\u20ac\u2122s MIRR? (Hint: Consider Period 7 as the end of Project B\u00e2\u20ac\u2122s life.)<\/li>\n
      • From your answers to parts a, b, and c, which project would be selected? If the WACC was 18%, which project would be selected?<\/li>\n
      • Construct NPV profiles for Projects A and B.<\/li>\n
      • Calculate the crossover rate where the two projects\u00e2\u20ac\u2122 NPVs are equal.<\/li>\n
      • What is each project\u00e2\u20ac\u2122s MIRR at a WACC of 18%?<\/li>\n<\/ul>\n

        EXECUTIVE SUMMARY (PAGE 1 OF YOUR REPORT)<\/h3>\n

        Provide the company owner with a 1-page executive summary of your findings and recommendations. Address the following in your executive summary:<\/p>\n

          \n
        • Briefly identify the purpose of your report.<\/li>\n
        • Concisely summarize the results of your financial analysis of the company\u00e2\u20ac\u2122s short- and long-term capital budget needs.<\/li>\n
        • Synthesize your recommendations for how the company can raise money in the short-term and long-term to continue to add value to the organization.<\/li>\n
        • <\/li>\n<\/ul>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

          Learning Goal: I’m working on a business question and need the explanation and answer to help me learn. PART 3: LONG-TERM WORKING CAPITAL CONSIDERATIONS: CAPM, STOCK VALUATION, AND PROJECT EVALUATION TOOLS (1\u00e2\u20ac\u201c2 PAGES, PLUS CALCULATIONS IN EXCEL) CAPM and Required Return: The company has a beta of 1.1, and the closest competitor has a beta […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","meta":[],"disciplines":[646],"paper_types":[],"tagged":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/questions\/6435"}],"collection":[{"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/questions"}],"about":[{"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/types\/questions"}],"author":[{"embeddable":true,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/comments?post=6435"}],"version-history":[{"count":1,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/questions\/6435\/revisions"}],"predecessor-version":[{"id":6807,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/questions\/6435\/revisions\/6807"}],"wp:attachment":[{"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/media?parent=6435"}],"wp:term":[{"taxonomy":"disciplines","embeddable":true,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/disciplines?post=6435"},{"taxonomy":"paper_types","embeddable":true,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/paper_types?post=6435"},{"taxonomy":"tagged","embeddable":true,"href":"https:\/\/www.goodacademic.com\/blog\/wp-json\/wp\/v2\/tagged?post=6435"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}