The purpose of this project is for you to
have some practice working with financial concepts in the real world. This will involve integrating some material
from throughout the course. The project
will also involve the development of your own approach to doing the work. The project does not provide a step-by-step
procedure for you to follow.
Your task is to determine the WACC for a
given firm using what you know about WACC as well as data you can find through
research. Your deliverable is to be a brief report in which you state your
determination of WACC, describe and justify how you determined the number, and
provide relevant information as to the sources of your data.
As you recall, the formula for WACC is
= (E/E+D) rE + D/(E+D) rD(1-TC)
The formula for the required return on a
given equity investment is
ri= rf + βi * (RMkt-rf)
RMkt-rfis the Market Risk Premium. For this
project, you may assume the Market Risk Premium is 4% unless you can develop a
rfis the risk free rate. The YTM on 10 year US
Treasury securities is a good approximation.
assume a corporate tax rate of 40%.
like, you can use the YTM on a bond issue that is not callable as the pre-tax
cost of debt for the company.
two or three page report that contains the following elements:
1. Your calculated WACC.
2. How data was used to calculate
WACC. This would be the formula and the formula with your values substituted.
3. Sources for your data.
4. A discussion of how much
confidence you have in your answer. What were the limiting assumptions that you
made, if any.