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Question: Investment guru Warren Buffet is one of the largest investors in The Coca Cola Company. He originally became interested in the soft drink company because he believed other investors were undervaluing the company. Mr. Buffet uses EVA as one of the primary tools to value companies. He believes that the true value of a company is determined by the ability of a company to earn cash returns in excess of the company's cost of capital.
When Mr. Buffet analyzed Coke's bottling companies he found a business that required very significant amounts of capital, the cost of which was barely being covered by the cash flows being generated by bottling operations - low EVA. The remaining elements of Coke's business involved brand management, product development, licensing, and several related areas. These operations required modest amounts of capital, but produced huge amounts of free cash flow - high EVA. This EVA analysis suggested that Coke would likely demand a higher valuation without the bottling operations. Mr. Buffet convinced Coke to form a separate company, Coca Cola Enterprises, to force investors to make two separate evaluations. The result was dramatic. The market valued these two separate companies much differently than when they were combined. The Coca Cola Company without the bottling organization was worth more than with the bottling organization.
The objective of your Final Project is to identify a company that might be worth much more if it were broken into pieces and valued (using EVA) separately.
The rationale for this difference can perhaps be explained by the difficult investors have valuing companies with multiple business units and/or accepting the insights of EVA analysis.
Happy Chips Inc. currently manufactures and distributes several varieties of potato chips to different types of retail accounts:
What are the advantages and disadvantages to a U.S. corporation which employs currency options on euros rather than a forward contract on euros to hedge its exposure in euros?
University Catering sells 50-pound bags of popcorn to university dormitories for $10 a bag. The fixed costs of this operation are $80,000, while variable costs of the popcorn are $.10 per pound.
What level of pretax cost savings do we require for this project to be profitable? MACRS schedule.
Silver is currently trading at $20 per ounce. Assume that the storage costs for silver are 1% pa. The riskfree rate is 4% pa.
It paid out $2 million in dividends for the year. What is Hayesville Corporation's sustainable growth rate?
What is their cash conversion cycle? (Hint: You may use the average daily sales to substitute for average daily COGS, when COGS is not given)
Many economists and accountants argue that expensing of options is not necessary because the dilutive impact of options is accounted for by the increased number of shares. Do you agree with them?
You're the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds.
Now suppose he decided to sell one of his stocks that has a beta of 1.20 and to use the proceeds to buy a replacement stock with a beta of 1.50.
Create an Excel spreadsheet and calculate how your interest payments, principal payments, and the outstanding loan balance changes over time for each of these.
The following figures show the number of defective components supplied each day by a factory. Does this data follow a binomial distribution?
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