Expense of Capital.


41 views
Uploaded on:
Description
Expense of Capital Segments of Capital Outlined Asset report December 31, 1998 - $ Millions Note: Current Liabilities incorporates an aggregate of $346 million of permanent fleeting obligation. Condensed Monetary record December 31, 1994 - $ Millions
Transcripts
Slide 1

Expense of Capital

Slide 2

Components of Capital MBA 402

Slide 3

Summarized Balance Sheet December 31, 1998 - $ Millions Note: Current Liabilities incorporates a sum of $346 million of permanent transient obligation. MBA 402

Slide 4

Summarized Balance Sheet December 31, 1994 - $ Millions Note: Current Liabilities incorporates a sum of $8 million of permanent fleeting obligation. MBA 402

Slide 5

Cost of Capital Overview MBA 402

Slide 6

Cost of Capital Agenda Cost of Individual Components Cost of Debt Cost of Preferred Stock Cost of Equity Weighting Approaches Book versus Business sector Weights Current versus Target Weighted Average Cost of Capital Structure Theory Hurdle Rates MBA 402

Slide 7

Cost of Debt MBA 402

Slide 8

Hershey’s Cost of Debt MBA 402

Slide 9

Cost of Debt Issues Book (or Historical) versus Business sector Cost of Debt Previous Example was Book or Historical Cost of Debt Cost of Previously Issued Debt In This Example: 4.05% Market Cost Current Cost of Similar Debt As of July 1999 Pre-Tax Cost of Similar Debt: 6.75% After-Tax Market Cost of Debt: 4.13% MBA 402

Slide 10

Preferred Stock Special Form of Ownership That Has a Fixed Periodic Dividend Payment That Must Be Paid Before Any Payment of Common Stock Dividends Hybrid Security Characteristics of Debt, however Considered Equity Limited Participation in the Firm\'s Growth Dividends Are Not Tax Deductible Unlike Tax Deductible Interest Popular with Utility Companies MBA 402

Slide 11

Cost of Preferred Stock MBA 402

Slide 12

Preferred Stock Issues What Price for the Preferred Shares Par Value Set “Value” When Issued Related to Book (or Historical) Value Related to Book (or Historical) Cost of Preferred Stock Market Value Current “Value” in the Market Related to Market Value Related to Market Cost of Preferred Stock MBA 402

Slide 13

Cost of Equity Cost of Equity Includes: All Stockholder Equity Components Common Stock Paid in Excess Retained Earnings Miscellaneous Shareholders’ Required Return Three Techniques Gordon Dividend Growth Model Capital Asset Pricing Model William Sharpe Won Part of a Nobel Prize Arbitrage Pricing Theory MBA 402

Slide 14

Gordon Dividend Growth Model MBA 402

Slide 15

Interpretation of Gordon Dividend Growth Model Note: Dividends are accepted to develop at 10% every year. This is my supposition . Try not to purchase stock in Hershey based upon this illustrative development rate. The stock cost in July 1999 was $58. MBA 402

Slide 16

Cost of Hershey’s Equity: Dividend Growth Model MBA 402

Slide 17

Dividend Growth Model Issues For Most Effective Use, Company Needs to Pay Dividend with Steady Stable Growth Can Be Used for Zero Dividend Companies by Estimating First Dividend Payment Difficulty in Defining Growth Long-Term, Perpetual Growth Rate MBA 402

Slide 18

Capital Asset Pricing Model (CAPM) Graphical Overview Stock Return = Risk-Free Rate + Beta (Excess Market Return) Excess Return = Capital Appreciation +Dividend Yield - Risk Free Rate MBA 402

Slide 19

CAPM Three Different Stocks Beta = 2 Beta = 2 Beta = 1 Beta = 1 Stock C Beta = .5 Beta = .5 C Stock B Stock An A MBA 402

Slide 20

CAPM: Application MBA 402

Slide 21

CAPM Reality Hershey Foods versus Market MBA 402

Slide 22

Market Risk Premium MBA 402

Slide 23

CAPM Issues Conceptual Appeal Determining Market Risk Premium Conceptual Appeal Portfolio Technique With Limited Statistical Properties for Single Company Application Conceptual Appeal CAPM Rejected Theoretically: Alpha Term  0 Other Things Explain Return Conceptual Appeal Lead to Arbitrage Pricing Theory MBA 402

Slide 24

Arbitrage Pricing Theory Multiple Regression Model Factors May Include Inflation GNP Growth Interest Rates Difference Between Long and Short-Term Rates Difference Between High Quality (AA) and Lower Quality (BB) Rates Others Focussed on Surprise in the Factors MBA 402

Slide 25

Cost of Equity Issues Three Techniques - With Limitations Dividend Growth Model Capital Asset Pricing Model Arbitrage Pricing Theory Systematic Estimation Largest Cost Component Not Tax Deductibility MBA 402

Slide 26

Cost of Capital Components Cost of Debt Historical versus Negligible Cost of Preferred Stock Par Value versus Current Market Price Cost of Equity Dividend Growth Capital Asset Pricing Model Arbitrage Pricing Theory MBA 402

Slide 27

Hershey’s Cost of Capital Historical Book Basis Weights MBA 402

Slide 28

Hershey’s Cost of Capital Market Basis Weights MBA 402

Slide 29

Weighted Average Cost of Capital Weighting Basis Book Basis Market Basis Time Focus Historical Current Projected Related Topics Capital Structure Hurdle Rates MBA 4

Recommended
View more...