Reference no: EM131224597
1. Calculate the cost of each capital component, after-tax cost of debt, cost of preferred, and cost of equity with the DCF method and CAPM method.
2. What do you estimate the company's WACC?
Use data from the provided worksheet. Let me know if you find anything wrong with the data if it interferes with solving the above problems. Please add a new worksheet to the workbook attached. Thank you!!
TIPS
1) cost of debt
You should look for publicly traded bonds for the firm and the Yield to Maturity (YTM) for the longest term bond would be an appropriate rate. You may use www.finra.org or morningstar (bonds tab) to obtain information on publicly traded bonds. If your firm has no debt, you could leave this calculation out.
2) cost of equity
Using CAPM - requires a beta estimation (look for published betas on various websites like MSN money, Reuters) and published risk free rates (10 year US T-bonds) and published market risk premium (historical US market risk premium).
Alternatively, you could calculate the Market risk premium = [Return on Market - Risk free rate]. A proxy for Return on Market is usually a historical (long term, at least 30 years) return on a market index like S&P500. Take a look at the link below for the return on the market (Compound Annual Growth Rate (CAGR) on the S&P 500):
https://www.moneychimp.com/features/market_cagr.htm
(You do not need to calculate the cost of equity calculation using DCF method)
3) cost of preferred stock
If your company does not have preferred stock, leave it out. If it does, then the yield on preferred stock would be your cost of preferred stock.
4) Weights of debt and equity
Use market weights for equity = share price * number of shares outstanding = market capitalization (can be found on yahoo finance or morningstar)
Book weight for debt closely approximates market weight for debt. Ignore all accruals/payables - use only interest bearing debt from the balance sheet when calculating total debt.
Hope this helps. Please discuss in your groups first if you have issues (as your questions are typically company specific), and if have any questions, raise it under this tab.
Use spreadsheet to post answer. Toolkit available for use provided.
Attachment:- Johnson---Johnson-Interim-Report.rar
Attachment:- Tool-Kit.rar
|
Central bank carry out monetary policy
: Through what instrument does the central bank carry out monetary policy? How do the bank's actions transmit through the economy?
|
|
What product attributes are crucial
: Discuss with your class the key factors for future competitive success. On what basis do buyers of the industry’s product choose between the competing brands of sellers? What product attributes are crucial? What resources and competitive capabilities..
|
|
Is the audience meant to feel safe and comfortable
: Is the audience meant to be emotionally engaged by the scenes unfolding onstage, or does the production take steps to keep the audience at a critical distance? Is the audience meant to feel safe and comfortable, or does the production confront the..
|
|
Society regardless of its wealth and power
: Every society regardless of its wealth and power must make certain choice s about production and distribution, specifically every society faces three basic economic decisions.
|
|
Calculate the cost of each capital component
: Calculate the cost of each capital component, after-tax cost of debt, cost of preferred, and cost of equity with the DCF method and CAPM method.
|
|
Are some ethical values not culturally relevant
: Are some ethical values or principles relative to one's own culture, religion or personal opinion? Are some ethical values not culturally relevant? What makes them relevant?
|
|
Analyze the costs and benefits over a five-year time horizon
: Analyze the costs and benefits over a five-year time horizon, Initiative Financing. Propose executive recommendations to proceed with, or defer, the initiative. Be sure to include a sound rationale. This may incorporate regulations, industry standard..
|
|
Explain the actions of the fed in regard to the three tools
: Assignment details: Explain the actions of the Fed in regard to the three tools.
|
|
What exactly is a scholarly source
: What, exactly, is a “scholarly source”? What is “peer review” (who is a peer)? What makes a “peer-reviewed journal” different from other sources of information?
|