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H.J. Heinz: Estimating the cost of capital in uncertain times 1. What is WACC? What is its purpose? 2. What were the yields on the two representative outstanding Heinz-debt issues as of the end of April 2010? What were they one year earlier? 3. What was the WACC for Heinz at the start of fiscal year 2010? What was the WACC one year earlier? Should you consider short-term debt? How reasonable are your interest rates for the firm? For the WACC? What is the market risk premium? What is Beta? How is it typically estimated? What is a drawback of this? How is the cost of debt estimated? Should you use book or market value weights? If you want market value of debt use (BV/100) * Price Should you use marginal or average tax rates? Why? How do …show more content…

Using the scenarios in case Exhibit 9, what role does leverage play in affecting the return on equity (ROE) for CPK? What about the cost of capital? In assessing the effect of leverage on the cost of capital, you may assume that a firm’s CAPM beta can be modeled in the following manner: BL = BU[1 + (1 − T)D/E], where BU is the firm’s beta without leverage, T is the corporate income tax rate, D is the market value of debt, and E is the market value of equity. What role does the tax deductibility of interest play in encouraging debt financing at CPK? What do you recommend? eBay 1. what are the costs and benefits of going public? 2. How should Bengier prepare to negotiate an offer price with the underwriters? What is an appropriate price? Should he be concerned about the IPO pricing patterns in case Exhibit 9? 3. How does the current market condition affect eBay’s decision? Should eBay go ahead with the offering? Ben and Jerry’s Homemade 1. What is Ben and Jerry’s mission statement? How has Ben & Jerry’s performed on the dimensions of the mission statement? Be specific. 2. Who is Morgan? 3. Why is Ben & Jerry’s a takeover target? Is there evidence that investors are dissatisfied? 4. Who controls the assets of B&J? How are assets allocated in a free-market system? 5. What kinds of asset control devices are used by management and Vermont? What might be the benefits or detriments of

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