Estimate the components of the cost of capital for your company using market data.
4.a. For the cost of common stock, analyze using the dividend growth model and CAPM. To determine Beta, first use published sources. Next, calculate your own beta estimate using regression analysis with 52 weeks of daily data. See the textbook's website to download the regression tool kit from Chapter 6. If the published estimates and the results of your regression analysis differ, justify your final choice of Beta for the WACC determinations.
4.b. Calculate the cost of preferred stock
4.c. Calculate the cost of debt. Recall that you do NOT use the coupon rate, but instead use the YTM for
each bond issue.
4.d. Determine the appropriate weights for each of the categories using market values.
4.e. Calculate the company's WACC.
4.f. In your opinion, has the company minimized its WACC? What could it differently? Recall that more
debt increases the risk of bankruptcy and more equity means the flotation costs of issuing stock.
4.g. Provide reasons why or why not the current WACC is appropriate for future use by the company
If not, explain which WACC should be used for future business decisions.
Historical Stock Price
Review briefly the historical performance of the company's stock price. Explain if this affected your analysis.