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Estimating the weighted average cost of capital

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Problem - Estimating the Weighted Average Cost of Capital

Kellogg Company manufactures cereal and other convenience food under its many well-known brands such as Kellogg's, Keebler, and Cheez-lt. The company, with over $135 billion in annual sales worldwide, partially ?nances its operation through the issuance of debt. At the beginning of its 2015 fiscal year, it had $6.5 billion in total debt. At the end of ?scal year 2015, its total debt had increased to $6.6 billion. Its ?scal 2015 interest expense was $227 million, and its assumed statutory tax rate was 37%. Kellogg has an estimated market beta of 0.60. Assume that the expected risk-free rate is 2.5% and the expected market premium is 5%.

Kellogg's stock closed at $76.38 on December 31, 2015. On that same date, the company had 420,315,589 shares issued, of which 70,291,514 shares were in treasury.

Required -

a. What is Kellogg's total market capitalization as of December 31, 2015?

b. Compute Kellogg's WACC?

Reference no: EM132733211

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