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For WalMart do the following using financial information?
Tax rate:
Using the income before taxes and income taxes paid, estimate the tax rate for the years that you have information available. Tax rates are supposed to be around 35%. Compare your estimates against the Effective Tax rate shown by Reuters. Discard any numbers that appear to be out of place and decide on the number you’ll use for the Cost of Capital estimation. You can consider taking average of the TTM rate shown in Reuters and your own estimate for the last year.
Cost of capital using book values:
You will use the book value of equity and the book value of long term debt to calculate the book value of the firm. Do not consider short term liabilities and you can ignore other long term liabilities. To apply the Capital Asset Pricing Model you will get a recent quote of 10 year Treasury bond rate and will use it as your Rrf. For the Market Risk Premium you can use any number between 5 and 7 percent. Personally I recommend 5.5%. For your beta you will use the average of the 4 estimates you got.
Cost of capital using market values:
You will use the market value of equity and the book value of long term debt that you used in the previous step and recalculate the Cost of Capital using market weights instead of book weights. Compare the two estimates and comment on the differences.
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Acort Industries owns assets that will have an 80% probability of having a market value of $50 million in one year. There is a 20% chance that the assets will be worth only $20 million. The current risk-free rate is 5%, and Acort’s assets have a cost..
You just won the lottery and want to give some money to a good cause. Because you have enjoyed this class so much, especially the tests, you decide to give $10,000 to HCC to fund student scholarships. HCC is a non-profit educational institution. What..
Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 16.25 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
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