Telecom

SUPPLEMENTAL NOTES: THE COST OF CAPITAL 1. What is the terms of capital? What is its take? - archetypal AND FOREMOST: It is an OPPORTUNITY COST - Should reflect the peril of the CFs being evaluated - hard-nosed implication: Does the number you calculate take a leak economic whizz? 2. Calculating it: cost of debt and weights of debt & justice - cost of debt usually straightforward (current merchandise stride) - what about the weights of debt and equity? In theory, should it reflect current book entertain weights, market rank weights, or something else? Discuss. 3. Calculating it: Cost of justice: using CAPM - take a chance-free regulate: should we use ST rate (ie-T-bills) or LT rates (bonds)? wherefore? - Using the market risk indemnity: arithmetic or geometric? Whats the difference?? - Betas: be equity betas huffy to the financing mix? If youre non sure, ask yourself: as the tight levers up (uses more debt financing), do the returns to equity (equity CFs) total riskier?? - Adjusting betas for the financing mix: the Hamada equation (NOTE: not inevitable for case) with no revenue enhancement: Be = Ba (1+D/E) with tax: Be = Ba [1+(D/E)(1-t)] How are the above derived?? - The dividend yield regularity: D1/P + g.

Uses? Limitations? 4. pick up Issues from article: Best Practices CASE NOTES: TELETECH The primal issues to address in this case are largely well-defined. However, you should curb that your discussion includes the by-line: 1. How does Tel etech currently use the hurdle rate? (9.3%) ! move to problem sector rate. Are in that respect any(prenominal) problems? What would be the argument for maintaining one hurdle rate? 2. portend the segment WACCs for Teletech (see exhibit 1); identify assumptions as appropriate. 3. map R. Phillipss graph (Fig 2). Discuss how the choice of hurdle rates (constant vs risk adjusted) affect the evaluation of Teletechs two segments....If you fate to get a full essay, order it on our website: OrderEssay.net

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