Reference no: EM131163964
Question: Could you team please take care of this and chose something in America
How to Approach your second
Course Project
WACC formula: WACC = were + wdrd (1-T)
Step 1: Determine we and wd
a) Go to Balance Sheet. For we, find Total Equity amount. For wd, find Total Liabilities, making sure to subtract any accounts payable or accrual amounts (non-interest-bearing debt) from the total.
b) we =Total Equity / (Total Liabilities + Total Equity)
c) wd = Total Liabilities / (Total Liabilities + Total Equity)
Step 2: Find T (the Tax Rate)
a) Go to Income Statement. For T, find Income Tax Expense, and Income Before Tax (sometimes called Earnings Before Tax).
b) T (in %) = Income Tax Expense / Income Before Tax
Step 3: Find re
a) Find the current 10-year bond rate using a Google search. This is your risk-free rate (rRF).
b) Find the average return of an S&P500 Index Fund, and that is your market rate (RM).
c) Use Yahoo Finance or other financial site to find your company's Beta (β).
d) Use the CAPM formula to solve for re = rRF + β (RM - rRF )
e) If you absolutely cannot find RM, then substitute in 4% for MRP. Then use the revised CAPM formula to solve for re = rRF + β (MRP). (Not the preferred method)
Step 4: Find rd
a) Go to Bond web site given in the Course Project instructions. Go to the Search page and search for your company. If your company is not there, you might want to consider another company!
b) Once the list of bonds your company has issued shows up, scroll to find a bond that is 1) non-callable, and 2) has a maturity that is as close to 10 years out from now as possible.
c) Select that bond. Go to the Info page for that bond and find 1) its coupon rate, and 2) if it is paid quarterly, semi-annually, or whatever. Multiply the rate to make it annual, and that is your rd.
Step 5: Compute WACC
a) Plug all the figures you've just found into the WACC formula at the beginning of these instructions, compute away, and POW! There's your real-life WACC!
b) And no - you may not use my instructions to fill in the part of your report that asks you how you calculated WACC. You need to write your own report!
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