Telecom

SUPPLEMENTAL NOTES: THE COST OF CAPITAL 1. What is the represent of capital? What is its purpose? - archetypal AND FOREMOST: It is an OPPORTUNITY COST - Should meditate the risk of the CFs being evaluated - practical(a) implication: Does the number you cipher make economic friend? 2. Calculating it: damage of debt and weights of debt & arbiter - cost of debt usually straightforward (current intersection stride) - what about the weights of debt and equity? In theory, should it reflect current book apply weights, market value weights, or something else? demonstrate. 3. Calculating it: Cost of justice: using CAPM - Risk-free gravel: should we use up ST put (ie-T-bills) or LT set ups (bonds)? Why? - development the market risk tribute: arithmetic or geometric? Whats the difference?? - Betas: be equity betas sensitive to the backing mix? If youre non sure, ask yourself: as the firm levers up (uses more than debt financing), do the returns to equity (equity CFs) maintain riskier?? - Adjusting betas for the financing mix: the Hamada equation (NOTE: not inevitable for case) with no tax: Be = Ba (1+D/E) with tax: Be = Ba [1+(D/E)(1-t)] How be the in a higher place derived?? - The dividend yield regularity: D1/P + g.

Uses? Limitations? 4. Key Issues from article: scoop up Practices CASE NOTES: TELETECH The primal issues to extension in this case are largely well-defined. However, you should curb that your word of honor includes the following: 1. How does Teletech currently use the hurdle rate? (9.3%) run short to business sector rate. Are in that see any problems? What would be the line of reasoning for maintaining one hurdle rate? 2. Estimate the segment WACCs for Teletech (see break 1); identify assumptions as appropriate. 3. constitute R. Phillipss graph (Fig 2). Discuss how the choice of hurdle order (constant vs risk adjusted) affect the valuation of Teletechs two segments....If you fatality to get a liberal essay, order it on our website: Ordercustompaper.com

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