ASSIGNMENT 8 SAMUEL ALVAREZ
As it is explained in the Exxon example, a firm might use a Divisional WACC, by identifying comparison firms(comps). These are firms that would have a similar risk and capital structure than the division for which we are trying to find a divisional WACC. The idea is to use an average WACC of these firms as an estimate WACC for our division. This would reduce the risk of the firm taking overinsting/underinvisting in its divisions.
Our project, since it has very low risk, could be an adding value project. This can be explained the following way: With the new project the firm would have a different WACC, since it’s Beta would ...view middle of the document...
Fort he packaging division, I will asume it operates all around the world. If it is only the US division, we should compare it to the top packaging companies in the US. As for the world, the comps would be : International Paper Company, Tetra Laval, Reynolds Group, Amcor,Rock-Tenn Company, Crown Holdings, Ball Corporation, Owens-Illinois, Toyo Seikan Group, Ardagh, Rexam, Mondi, Sealed Air Corp, Rengo Co, MeadWestvaco Corp, Nine Dragons Paper, Greif, Bemis, ALPLA and Graphic Packaging.
Last, for the enternainment division: Walt Disney Parks and Resorts, Merlin Entertainments Group, Universal Studios Recreation Group, Parques Reunidos(Spain), Six Flags Inc, SeaWorld Parks & Entertainment, Cedar Fair Entertainment Company, OCT Parks China.
b. Yes it affects the analysis. I was analyzing in a competitive atmosphere but being internal sales representing 63% of the total sales of the packaging business, this means that this division is more dependant on how well the other divisions do than on its own market. It would not be comparable to the other companies in the industry, unless they had the same influence of its intern sales, this means the same capital structure and risks, fact that I don’t know.
As we can see in the Spreadsheet and in the pdf, the U.S. Government Interes Rates(April, 1988) are the following:
30-year Maturity 8,95%(Marriot and lodging)
1-year Maturity 6,90%(Restaurant and...