Module 5 Student Version - ACE REPAIR, INC.
Question # 00108314
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Updated on: 09/26/2015 02:25 AM Due on: 09/30/2015
Module 5 Student Version
ACE REPAIR, INC.
Cost of Capital (Easy)
This case illustrates the cost of capital estimation process. It
demonstrates (1) the mechanics of determining the component costs of
capital--specifically debt, preferred stock, and common equity, (2) the
effects of changes in the the target capital structure on the WACC, (3)
the effects of callable bonds on the cost of debt, (4) and when to use
YTC vs. YTM as the component cost of debt.
Investment opportunities are also evaluated, and the marginal cost of
capital (MCC) schedule is combined with an investment opportunity
schedule (IOS) to illustrate the role of the cost of capital in the
capital budgeting process. To view a graph of the MCC and IOS
Schedules, click on the 'MCC-IOS' tab at the bottom of the workbook.
To return to the model, click on the tab labelled 'CASE 54M.'
The model is long, because it does a lot of little calculations,
and also because we copied values to use the IRR functions to find
bond yields. Because of its length, it may take a while to operate the
model, and it would be easy to mess it up. It would be easier to not
use the model unless you plan to do sensitivity analysis.
If you are using the student version of the model, the following cells
have been blanked out: C68, C71, C74, C90, B140:B141, C112, F161, F163,
F166, E172, E174, E177:E178, D183, E187, and B201. Before using the
model, it is necessary to fill in the empty cells with the appropriate
formulas. Once this is done, the model is ready for use.
This model is quite large, but is broken down into easy to find sections.
These sections can be reached by looking for the Named Range of the
area. To access the area, press F5 and then type the name of the area
detailed below, that you wish to go to.
Section Range Name
- -
1. Model Instructions Instructions
2. Variable Input/Key Output Input/output
3. Balance Sheet & Income Statement Finstmt
4. Calculate Historical Growth Rate Growth
5. Cost of Debt Calculations Debt
6. Calculation of Weighted Avg. Cost of Capital WACC
7. Selection of Optimal Capital Budget Capbud
8. Graph Data for MCC and IOS graphs GraphData
ACE REPAIR, INC.
Cost of Capital (Easy)
This case illustrates the cost of capital estimation process. It
demonstrates (1) the mechanics of determining the component costs of
capital--specifically debt, preferred stock, and common equity, (2) the
effects of changes in the the target capital structure on the WACC, (3)
the effects of callable bonds on the cost of debt, (4) and when to use
YTC vs. YTM as the component cost of debt.
Investment opportunities are also evaluated, and the marginal cost of
capital (MCC) schedule is combined with an investment opportunity
schedule (IOS) to illustrate the role of the cost of capital in the
capital budgeting process. To view a graph of the MCC and IOS
Schedules, click on the 'MCC-IOS' tab at the bottom of the workbook.
To return to the model, click on the tab labelled 'CASE 54M.'
The model is long, because it does a lot of little calculations,
and also because we copied values to use the IRR functions to find
bond yields. Because of its length, it may take a while to operate the
model, and it would be easy to mess it up. It would be easier to not
use the model unless you plan to do sensitivity analysis.
If you are using the student version of the model, the following cells
have been blanked out: C68, C71, C74, C90, B140:B141, C112, F161, F163,
F166, E172, E174, E177:E178, D183, E187, and B201. Before using the
model, it is necessary to fill in the empty cells with the appropriate
formulas. Once this is done, the model is ready for use.
This model is quite large, but is broken down into easy to find sections.
These sections can be reached by looking for the Named Range of the
area. To access the area, press F5 and then type the name of the area
detailed below, that you wish to go to.
Section Range Name
- -
1. Model Instructions Instructions
2. Variable Input/Key Output Input/output
3. Balance Sheet & Income Statement Finstmt
4. Calculate Historical Growth Rate Growth
5. Cost of Debt Calculations Debt
6. Calculation of Weighted Avg. Cost of Capital WACC
7. Selection of Optimal Capital Budget Capbud
8. Graph Data for MCC and IOS graphs GraphData
-
Rating:
/5
Solution: Module 5 Student Version - ACE REPAIR, INC. (SOLUTION)