Study Session 8: Corporate Finance: Financing and Control Issues
A company will initially outsource its electric scooter parts. But manufacturing these parts in-house beginning in 2016 will imply changes to an existing factory. This factory cost €7 million three years ago and had an estimated useful life of 10 years. Fromm is evaluating two scenarios:
Scenario 1: Sell the existing factory for €5 million. Build a new factory costing €30 million with a useful life of 10 years.
Scenario 2: Refit the existing factory for €27 million.
Started studying the part - and I feel like the whole Corporate Finance part in Level II is doable without much studying for say, Investment Bankers with DCF modeling and valuation experience/skills.
Anyone had the same feeling for this part?
If we are making an offer with a mix of cash and stock, do we first work with the cash component or the stock component?
Hi guys, how’s everyone doing? Was wondering if there’s anything wrong with the answers provided? Cost of equity in the table clearly states 9.7% for 10/90 Debt/Equity. But in the answer it’s 9%. Am I missing something here?
Exhibit 1. Skylark Industries Estimated Costs of Capital for Various Capital Structures
In mergers and acquisitions, I get confused between comparable firms and comparable transactions. Does anyone have a magic trick to differentiate them?
Does bootstrapping usually take place in rapid growth phase or maturity phase?
I am taking the topic test on the CFAI website right now, this is the second question. It asks for FCF but specifically says not to include the change in Fixed Capital Investment in the calculation, which is the exact opposite of the Equity section. Does anyone know why this is?
For the practice problem 23rd from the curriculum, the answer says Repurchasing shares or paying a dividend would increase the debt weight, which would reduce the WACC. How does this happen? I mean if you repurchase shares, it would increase debt only is you use debt financing. What if you use your excess cash? How will that reduce WACC? And, how does paying a dividend increase debt??
Also, does repurchasing shares decrease equity by the repurchased amount?
Can anybody explain the conclusion drawn from example 10 of the curriculum.
1. Cash option - premium 60 million
2. Stock Option - premium is 67 million
3. Mixed option - premium is 64 million
Still the conclusion drawn is for stock option why the acquirer pay the high premium.
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