WACC Project -
In this project, you will find and discern the appropriate data to determine a realistic assessment of the weighted average cost of capital for a firm of your choosing.
You will need to search for data from several sources, use subjective judgment to determine which data to use or discard, use subjective judgment to determine which calculation gives a more acceptable estimate and make some simplifying assumptions.
The purpose of the projects is to show some of the sources of measurement errors in financial analysis, to introduce the diverse sources of publicly available financial information and to develop skill in analysis in situations where there are too much or too little data.
Keep the following in mind when choosing a company:
- Publicly traded
- No utilities
- No financial firms
- No all equity firms
- No firms with large amounts of convertible securities or warrants
Organization of the paper should be as follows:
I. Title page
II. Table of Contents
III. Introduction/Background (2-3 pages)
This section should include background on the company that has been chosen.
IV. Pages showing equations with data and brief description
There is no page length given for this as it can vary greatly. This section is to be divided up based on the topics. In each section, you must show and explain the equations that are used. In addition, you are to draw any conclusions on the company you can from this data. Please note that detailed worksheets showing all of the calculations for this section are to be included in an appendix.
Cost of Equity (Common Stock)
- Beta from Regression and two Betas from analysts
- Beta Chosen for CAPM and why
- Capital Assets Pricing Model (include how determined RF and[ RM or (RM - RF)]
- Discounted Cash Flow (DCF) (only if dividends - include how determined)
- Own-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine risk premium)
Cost of Preferred Stock
Cost of Debt (make sure to include table that lists all bond issues with weighted average cost of debt)
Market Value of Debt (will have calculated above, but will need to add any long term leases from balance sheet to get total market value of debt)
Market Value of Equity
Market Value of Preferred Stock
Value of Firm
Firm's Tax Rate (explain how determined)
Weight for Equity
Weight for Preferred Stock
Weight for Debt
WACC (Weighted Average Cost of Capital)
V. Assumptions
Including but not limited to RF, RM, RPM (which =Rm - RF), growth rate of dividends. This page should have a brief description of how you came up with the estimates with spreadsheets, etc. to be put in the appendix.
VI. Appendix
Appendix should include all relevant data including debt data from Morningstar, calculations of weighted average cost of debt, stock returns, betas from analysts, beta regression analysis, method/sourcing for RF and RM, growth rates for dividends, different methods to determine tax rates, etc. Detailed descriptions, tables of data and excel sheets etc will be in the appendix.
VII. References
Attachment:- Assignment Files.rar