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The Cost of Capital
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</p> <p><b>Chart X</b> </p> <p>XXXXX 1 XXXXX XXX XXXXXX XXXXXXXX XX XXX equity XXXXXXX (9.8%) is substantially XXXXXX that the return XXXXXXXX by the XXXX XXXXXXX (5.0%) since the XXXX XXX XXX XXXXXX XXXXXXX is XXXXXX XX XXXXXXX XX XXX XXXX XXX XXX XXXX holders. The XXXXXX of Sugarloaf XXXXXXXX XXX financed XXXXXXXX through equity XXXXXX XXXXX it XXX no debt. XXXXXXXXXXXX, the XXXX XX equity (8.2%) XXXXXXXX an estimate XX XXX XXXX of XXXXXXX, XXXXX XXX XXXXXX XX the only XXXXXX of XXXXXXX. XX interpretation, the XXXXXXXX return or XXXX of XXXXXXX XXX Sugarloaf XXXXXXXX investments XX assessed XXXXX Torrada’s XXXXXXXX XX Sugarloaf Mountain’s cost of equity, 8.X%. The XXXX of XXXX XXXXXXX is lower as compare XX XXXXXX XXXXXXX XXXXXXX debt holders maintained XXX first XXXXX XX the XXXXXXX. XXX XXXXXXXX average required return of debt and equity holders XXXXX XX XXX required return XX the assets XXXXXX since XXXX holders and XXXXXX holders combine XX XXXXXX XXX XXXXXXX XXXXXX XXXXXXX. It is preferable XX XXX XXX XXXXXXX XXXXXXX structure weights in XXXXXXXXXX the cost of capital and it is inappropriate to XXXXXX the XXXXXXX XX it XXX an inappropriate capital XXXXXXXXX. For White Oak the XXXX can be XXXXXXXX just multiplying XXX XXXXXXX XX XXX XXXXXXXX XXXXXXX because White XXX is XXXXXX with 30% XXXX XXX XX% XXXXXX. XXXXXXX XXXX payments are tax XXXXXXXXXX therefore it cost White XXX XXXX X.X% to deliver XXXX XXXXXXX of X.0% with a XXXXXXXX tax XXXX XX 34% (XXXXXXX,2014). </p> <p><b>XXXXXXXX XX Cost XX XXXXXXX at XXXXX XXXXX </b> </p> <p>In order to XXXXX the required XXXXXX XXX XXX XXXXXX XX XXXX XXXX XXX XXXXXXXX average required XXXXXX XX equity and XXXX XXXXXXXXX. The XXXXXXXX XXXXXXXX XXX cost XX XXXXXXX estimation is XXXXXXXXXX XXXXXXX the method XX estimating a XXXXXXXX XXXXXXX cost of XXXXXXX (WACC) by XXXXX the weighted average XX the XXXXXXXXXX costs XX XXXX XXX equity. Since XXX risk profile XXXXXX XX XXXX XXX XXXXXXX XXXXXXXX XX XXXXX different from the XXXX XXXXXX XXXXXXXX of the Tasty Bread XXXXXXXXX, XXXXX XXXXX has been excluded. XXXX of Tasty Bread is deemed to XXXXXXXX XXX XXXX XXXXXXXX benchmark that XX X.X%. XXXXX making the XXXXXXXXXX decision XXX XXXXXXXXX XX XXXXXXXXXX firms has XXXX criticism, XXXXXXXXX in order XX justify this decision WACC XX Tasty Bread XX XXX XXXXXXXX XX the basis XXX cost of capital isn't the XXXX XX XXXXX. The XXXX and XXXXXXX XXXXXXXXXX required XX be more XXXX the benchmark of XXXX and jellies XXX not the bakery XXXXXXXXX; XXXX all XXXXX to XXXXXXXX XXXXX the money is going and XXX XXXXX the XXXXX XX XXXXXX. XXXXX Bread's jam XXX jellies XXXXXXXXXX XX estimated by the XXXXXXXX XXXXXXXX XXXXXXXXX of Moose River X.0%, White XXX 7.X% XXX Sugarloaf XXXXXXXX 8.2%. The consistency of the XXXXXXXXX increased his XXXXXXXXXX that XXX appropriate hurdle XXXX XXX the XXXXXXXXXX project was X.X% since that XXXXXXXX XX be the XXXXXXXXXX XXXX XX XXXXXXX for investments of similar risk. Because XXX 8.0% XXXX of XXXXXXX exceeded the expected XXXXXX XX X.X%. </p> <p><b>Recommendations</b> </p> <p>It XX worth noting XXXX 8.X% XXXX of XXXXXXX exceeds that XXX XXXXXXXX XXXXXX of X.X% XXXXXXXXX it XXXXX not create XXXXXXXX XXXXX XXX jam and jellies investment XXXXX XXX current XXXXXXXX. It XX XXXXXXXXXXX XXX Tasty XXXXX to use a collection of comparable XXXXX in order to XXXXXX the estimation error associated with individual WACC XXXXXXXXX XXX 7.0% cost XX XXXXXXX XX regarded XX XXX appropriate XXXXXXXX XXX Tasty XXXXX XXXXX XX the XXXX XX XXXXXXX estimates XX the XXXXXXXXXX XXXXX XXXXXX XXXX its own cost XX XXXXXXX. XXXXXXXXXXX, XXX X.M XXXXXXX Company can XXXX XX XXXXXXXXXXX XX an alternative XXXXXXXXXX XXXXXXX for XXXXXXXXXX the XXXX of capital XX Tasty XXXXX. The XXXXXXXX outcome of XXXXXXXX average XXXX of XXXXXXX XX XXXXX XXXXXXXXXX considerations XXX compare XXXX XXX XXXXX XXXXXXXXXX XXXXXXXX average cost XX capital XX XXXXX XXXXXXXXXX firms XXX in case if Smucker XXXXXXX a lower XXXX associated XXXX it XXXX be a XXXX XXXXXXXXXXX XXXXXXXXX not. XXXXX XX debt-to-capital XXXXX XX XX%, XXXX XX XXXXXX XX X.5%, cost XX debt XX 4.X% the WACC XX Smucker is XXXXXXXXXX as below: </p> <p><i>XXXX (XXXXXXX) = 0.XX × 4.5% × (1 − XX%) + 0.85 × 8.X% = 7.7>#/i### </i></p> <p><i>The calculated WACC of Smucker XX lower XX compare to XXX rates already estimated XXX XXXXX XXXXXXXXXX firms XXXX as Moose River, White XXX XXX XXXXXXXXX Mountain. XX XXXXX XXX XXXXXX XXXX XXXXXXXXXX with XXXX's operations. WACC of X.7% of XXXXX XXXXXXXXXXX considerations provides XXXXXXXXXX XX XXXXX the XXXXXXXXX XXXXXXX XXXX XX XXXXXXX XXXX is X.X% XX how comparable Pane believed XXXXXXX XX be XX XXX risk of the proposed XXXXXXX. Based XX XXXX fact, it is recommendable to use XXX XXXX XX XXXXX XXXXXXXXXX XXXXX comparable XXXXX so that XXXXX can XX XXXXXXXX minimum rate of return of %X.8 at XXXXX XXXXX Bread produces value XXX its XXXX XXXXXXXXX as XXXX as equity XXXXXXXXX (Michael,XXXX) </i></p> <p><i><b>References</b> </i></p> <p><i>XXXXXXXXXX XX Cost XX Capital. (n.d.). <em>XXXXXXXXX XXXXXXX: Theory and XXXXXXXX</em>, 86-112. doi:XX.4135/9788132101284.XX </i></p> <p><i>Michael,S. (XXXX). The Cost of Capital- XXXXXXXXXX and XXXXXXXX. XXXXXX Publishing XXXXXXXX. </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i> </i></p> <p><i><br></i></p>">
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