Your group has been assigned to estimate the Weighted-Average-Cost-of-Capital (WACC) for your assigned firm, conduct relevant sensitivity analyses, and report your findings. At this point, you should decide whether to drop the firm’s use of short-term debt from your estimate of WACC, or if you feel it is an important enough element of the capital structure to retain it in your estimate.
Conduct adequate sensitivity analyses of how factors that were problematic in estimation of WACC will affect your computations. Present your results in an easily legible table (or tables).
Prepare a succinct memorandum to the Corporate CFO (you will find their name) stating your estimate of the firm’s WACC. You should briefly state your estimates, your central assumptions, and the results of any sensitivity analyses that you have conducted. Think about what information is essential to include in the text, and what might be best presented in tabular form. Clearly, the CFO is a very sophisticated reader. What is the absolutely essential information he or she would want to know, to establish confidence in your estimate?
The memorandum should be in proper business form. It should not be longer than one single-spaced page (though you should submit a double-spaced version for ease with editorial commentary). You should also append appropriate documentation to support your estimates, and these should be in acceptable format to present to a high-level corporate officer. They should be referenced in the main body of the memo, and it should be very easy for the reader to find the needed supporting material in the appendices.
The CFO has also requested that you include a brief appendix to the main document, describing and justifying the assumptions that you used to estimate the required return on equity capital.