The firm and the yield to maturity

Reference no: EM13714846

Calculate the following for General Mills(GIS) for last three years

1) cost of debt
You should look for publicly traded bonds for the firm and the Yield to Maturity (YTM) for the 10 year 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

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

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.

Reference no: EM13714846

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