If it is assumed as a preferred stock, appropriate measures would be to discount cash flows at an unlevered cost of capital. Asset cost of capital is associated with the cost of funds used to run a business. On the contrary, given that the margins of A3XX were based on earnings before the repayment of launching aids and RSPs, the investment can be taken as a debt and would require the calculation of the value using interest tax shields by using either a levered cost of capital such as weighted average cost of capital
Also, they pointed the graph that every firm should use in order to find their optimal WACC. Pratt and Grabowski ( 2008 ) state that the WACC should be found when dividing DEBT/ TOTAL CAPITAL and that represents for one company ideal and optimal WACC. Also, they state that WACC should be higher than the cost of debt but lower than cost of equity, rather it should be somewhere in the middle of these two, depending if the amounts of debt and equity are the same. The WACC calculation will give us the discount rate at the end. That rate represents how much we are on average paying interest for the money we have borrowed from various sources.
Summary The case shows the differences in depreciation as the major operating expense in the examples of two airlines: Delta AL and Singapore AL. It also displays different practices in calculating the depreciation expense. Question 1: Calculate the annual depreciation expense that Delta and Singapore AL would record for each $100 gross value of aircraft. For each airline, there are several periods with different asset life and residual values. Considering that: Depreciation = (Asset value – Residual Value) / Asset useful life, then Delta (Exhibits 4) Straight-line method Before July 1, 1986 July 1, 1986 – March 31, 1993 After April 1, 1993 Asset Useful life (years) 10 15 20 Residual Value (%) 10 10 5 Depreciation ($) 9 6 4.75 Singapore
Efficiency Ratios The efficiency ratio is used to measure how the company uses its assets and liabilities internally, these ratios to measure the performance in short term. • Accounts Receivable Turnover This ratio used to measure the firm's effectiveness in extending credit and in collecting debts. The receivables turnover ratio is an activity ratio measuring how successfully a In collecting its AR during the year, if the company has AR turnover 2 that means the AR turned over two times during the year. Accounts Receivable Turnover= Credit sales AR average (assume that 75% sales are credit) AVON= 9.1 ULTA= 41.1 REVLON= 4.12 • Fixed Asset Turnover, Reflecting how efficiently a company has used its assets to generate revenue, a higher ratio indicate of greater efficiency in managing and investing fixed-asset. Fixed Asset Turnover= Net sales/ net assets EVON= 1.63 ULTA= 1.9 REVLON= .77 • Inventory turnover Inventory turnover is a ratio showing how many times a company's inventory is replaced over a specific period of time, the higher ratio the more success is the company in selling its inventory.
Easy jet 3. Klm Competitor profiling provides knowledge of rivals and offers a source of competitive advantage. The table below shows the prices charged by the competitors (one-way) Airlines London to Edinburgh London to paris British Airways £70 £170 Easy Jet £65 £60 Klm £100 £85 Based on price profiling Crowair Plc. must price its service equivalent to or below that of the competitors so as to gain a pricing advantage. Information about costs: Table of fixed costs Crew member salaries Aircraft
This is calculated by determining the weight average cost of capital. Similarly the cost of capital is made up of equity and debt. Hence for the firm to maximise profit and obtain shareholders wealth the organisation must sell goods, contributing to the total revenue minus the total cost. Therefore the remainder or excess surplus is known as profit maximisation. In light of this when profits are maximised the firm make decisions to access shareholders wealth through the means of equity.
Event-study conduction implements a review of a sample of deals. This includes the analysis of prices of acquirer and seller companies before the announcement of a divestment, right after the announcement and after the divestment is completed. A sample of deals contains information about the acquirer and target names, deal value, seller, target and acquirer stock prices in different periods before and after the announcement and the completion of deal. Results anticipated According to the literature revised, the return from the divestment is expected to be positive. The value of the increase depends on the quality of the target.
Sensitivity Analysis The sensitivity analysis focuses on examining how Chipotle’s valuation changes when some key inputs vary. Two of the most important inputs of the valuation are the weighted average cost of capital (WACC) and the perpetuity growth rate. In this thesis, it is assumed that Chipotle would have a WACC of 6.65% and a perpetuity growth rate of 2.84%, which would result in a share price of $443.90 for Chipotle. In order to determine the impacts that changes in these two inputs may have in Chipotle’s valuation, a sensitivity analysis is conducted by varying the WACC and the perpetuity growth by 0.25% consecutively while keeping all other inputs constant. The next table shows how Chipotle’s price per share varies when the perpetuity
This paper briefly addresses these factors as a part of the Joint Strategic Planning System (JSPS) process. The JROC assesses risks, establishes priorities, and promotes economies of scale for the joint force. The JROC’s products lead to the decision to reduce F22 procurement by nearly fifty percent was based on JSPS output. This assessment of the F22 program requirements and
Friedman based his work on the intuition that income is more volatile than consumption. Consumption is based on long-term expectations about income since households prefer to smooth consumption over time and avoid short-term fluctuations (Meghir, 2004). The implication of this theory on household behavior is that household will save today if their income is higher than the future and vice versa. For example, in economic crises current income becomes lower than future income so people dissave to cover current consumption (Berry, Williams, & Waldron,