Estimates against the effective tax rate shown by reuters

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Reference no: EM131179782

For WalMart do the following using financial information?

Tax rate:

Using the income before taxes and income taxes paid, estimate the tax rate for the years that you have information available. Tax rates are supposed to be around 35%. Compare your estimates against the Effective Tax rate shown by Reuters. Discard any numbers that appear to be out of place and decide on the number you’ll use for the Cost of Capital estimation. You can consider taking average of the TTM rate shown in Reuters and your own estimate for the last year.

Cost of capital using book values:

You will use the book value of equity and the book value of long term debt to calculate the book value of the firm. Do not consider short term liabilities and you can ignore other long term liabilities. To apply the Capital Asset Pricing Model you will get a recent quote of 10 year Treasury bond rate and will use it as your Rrf. For the Market Risk Premium you can use any number between 5 and 7 percent. Personally I recommend 5.5%. For your beta you will use the average of the 4 estimates you got.

Cost of capital using market values:

You will use the market value of equity and the book value of long term debt that you used in the previous step and recalculate the Cost of Capital using market weights instead of book weights. Compare the two estimates and comment on the differences.

Reference no: EM131179782

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