calculations used to determine the weighted average cost of capital (WACC). This SLP calculates the WACC for my SLP company – McDonalds‚ discusses how those calculations were arrived at and briefly describes WACC and what investors use it for. COMPANY NAME: McDonalds Inc Balance sheet date: 31 DEC 07 Market values date: 1 SEP 08 SOURCE BOOK VALUE MARKET VALUE PROPORTIONS COST (%) PRODUCT (a) (b) (c)
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Weighted Average Cost of Capital What It Measures The weighted average cost of capital (WACC) is the rate of return that the providers of a company’s capital require‚ weighted according to the proportion each element bears to the total pool of capital. Why It Is Important WACC is one of the most important figures in assessing a company’s financial health‚ both for internal use (in capital budgeting) and external use (valuing companies on investment markets). It gives companies an insight into
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products are sold everywhere convenience stores‚ grocery stores and kiosks. 2 - Cost of Capital A company’s capital is consists of mostly debt or equity. Equity and debt are external sources of financing and financing from external sources is not without cost. The cost of capital is the cost to raise capital through equity and debt. It can be defined as the weighted sum of the cots of equity and the cost of debt. It determines the rate of return that a firm would receive if it invested its
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WACC: Weighted average cost of capital =WACC= SS+B×Rs+BS+B×RB×1-tC note: Rs ‚ cost of equity; RB ‚ cost of debt; tC ‚ corporate tax rate. For cost of equity‚ Rs‚ we calculate it by using the SML‚ according to CAPM model. Rs=RF+β×[RM-RF] As we can see in the chart behind the case‚ beta of Worldwide Paper Company is 1.10; the Market risk premium (RM-RF) is 6.0%. Because this on-site longwood woodyard project has six year life and the investment spend over two years‚ the total long of this program
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WACC Weighted Average Cost of Capital Formula The WACC Weighted Average Cost of Capital formula is complex‚ and can be broken into several components. The individual component costs are provided in the following sections. WACC Weighted Average Cost of Capital Variables V=Firm Total Value (Debt + Preferred Shares + Common Equity + Retained Earnings) Md=Market Value of Debt Mp=Market Value of Preferred Shares Mc=Market Value of Common Equity Mr=Market Value of Retained Earnings K=Current
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Extra Credit Assignment: Yeats Valves and Controls Inc. Completed as a Group with the Following Individuals: (in alphabetical order by last name) Adetunji Adeniyi Tung F. Cheng Gregory Chiu Rashmin Patel WenHao Zhang Course Title: Accounting and Finance Course No./Section: MG6093 Instructor: Frank X. Apicella November 28‚ 2012 Yeats Valves Question The following are questions which should focus the groups on important
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profitable and competitive advantage. The third financial strategy of optimizing the use of debt in the capital structure helps the company to maximize the revenues from its debt’s management. Marriott invests a large sum of money in long-term asset. It is essential to maximize and optimize its long-term debt to meet the need of investment. Generally‚ Marriott optimize the use of debt in its capital structure helps the company maximize revenues from its debt’s management. The fourth financial strategy
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CHAPTER 9 THE COST OF CAPITAL (Difficulty: E = Easy‚ M = Medium‚ and T = Tough) Multiple Choice: Problems Easy: Cost of common stock Answer: d Diff: E [i]. Bouchard Company ’s stock sells for $20 per share‚ its last dividend (D0) was $1.00‚ and its growth rate is a constant 6 percent. What is its cost of common stock‚ rs? a. 5.0% b. 5.3% c. 11.0% d. 11.3% e. 11.6% Cost of common stock Answer: b Diff: E [ii]. Your company ’s stock
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Q1: The Target Capital structure for Kaynat Manufacting is 50% common stock‚ 15% preferred stock‚ and 35% debt. If the cost of common equity for the firm is 19.6%‚ the cost of preferred stock is 12.9% and the before tax cost of debt is 9.5% what is the weighted average cost of capital? The firm’s tax rate is 35%. Answer: WACC = (50% x 19.6%) + (15% x 12.9%) + ( 35% x 9.5% x 65% = Q2: The following are the information of a company: |Type of capital |Book value (Tk) |Market
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presentation and an executive summary of no more than 2 pages. Guideline Questions for you Report 1. What is the value of the project assuming the firm was entirely equity financed? What are the annual projected free cash flows? What discount rate is appropriate? NPV = $1‚228‚485 Discount rate = cost of equity (from CAPM) = 15.8% (see model for projected free cash flows) 2. Value the project using the Adjusted Present Value (APV) approach assuming the firm
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