Reference no: EM132804448
WACC Project - Apple, Inc. is my chosen company for this project
I'm need help calculating the following for Apple, inc. :
- Weight for Equity
- Weight for Preferred Stock
- Weight for Debt
- WACC (Weighted Average Cost of Capital)
Here are some equations and tips to help
HELPFUL EQUATIONS
WACC = [(wE) x RE] + [(wPF) x RPF] + [(wD) x RD x (1- TC)]
Where:
Weights
(wE) = % of common equity in capital structure
(wPF) = % of preferred stock in capital structure
(wD) = % of debt in capital structure
Component costs
RE = firm's cost of equity
RPF = firm's cost of preferred stock
RD = firm's cost of debt
Calculating the Weighted Average Cost of Debt
- Find the market value of each bond issue. To find the number of bonds and then multiply by the price of the bond (remember that bond prices are quoted in 100s, but are really 1000s).
- If there is no bond price, assume $1000 par is the price.
- For these bonds, the YTM =coupon rate
- Calculate the total market value of bonds
- Calculate the weights for each bond issue as market value of bond issue/ Total market value of debt. Make sure your weights sum to one.
- For each bond issue, multiply the weight by that issue's YTM.
- Sum the weighted YTMs, and you now have the weighted average RD,
Calculating the Weights for the WACC
- MV of bonds has already been calculated. To that you will add in the value of leases from the Balance Sheet
- For Preferred Stock, find the number of preferred shares in the annual report and the prices in the WSJ Market Center
- For common equity, find the price and number of shares in Yahoo Finance.
- Can use example found in bottom half of bond worksheet or develop your own.
Calculating the Required Return on Preferred Stock
- To Calculate RPF, we use the constant dividend model, ie. the perpetuity model.
- RPF = Dividend/P0
- Check in your company's annual report to see if they have preferred stock and what the dividend is. Make sure you use the yearly dividend since we are calculating annual returns.
- Prices can be found in the WSJ Market Center: https://online.wsj.com/mdc/public/page/2_3024-Preferreds.html
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