Your group will be assigned a publicly listed company in the USA and you need to compute the company's overall weighted average cost of capital (WACC). Write up your analysis (should not exceed 2 pages) adhering to the following steps:
Our company is The Coca-Cola Company
1) Estimation of the risk free rate (provide the value, source, date, as well as short explanation behind your choice)
2) Estimation of the equity market risk premium (you can use here 5.5% for the American publicly listed companies),
3) Estimation of beta (provide the value , the source, and date)
4) Estimation of the upcoming dividend and growth in dividends if applicable ( provide the value, source, as well as a short explanation behind your estimation)
5) Computation of your estimated cost of common equity
6) Computation of your estimated cost of preferred equity if applicable (provide the source and date of data as well as an explanation behind your estimation).
7) Estimation of cost of debt (provide the value as well as a short explanation behind that)
8) Estimation of the WACC (describing in detail how you got the target capital structure weights, including the sources and dates of when the information was gathered).
9) Explain what the WACC means, how can you use it in decisions, and do you think that you got a reasonable estimate.
Useful Data Sources:
- To get the US treasury bills and bonds rates go to :www.ustreas.gov
- To get the company's stock price and beta visit MSN money, Yahoo Finance, or any other finance web source of your choice
- To get the company's financial statements, go to the company's website, or the SEC website- Filings - Edgar search tools (https://www.sec.gov/edgar/searchedgar/webusers.htm#.U3Jnfv1OXIU). Search for form 10 K (annual report).
- To get the company's credit risk rating, go to Standard and Poors, or Moody's www.moodys.com . You will have to register first, it is free, they will send you an email, you can activate your account by clicking on the link that they will send to your email.
- To get the default risk premium rates go to Damodaran'swebsite ( https://damodaran.com ) , go to capital structure, and then Ratings, spreads, and Interest coverage rates.