Part Note: This is a very hard project because it entails looking for info that
ID: 2482007 • Letter: P
Question
Part Note: This is a very hard project because it entails looking for info that many times is not obvious The most important is your thought process and assumtions how to arrive at the number/value. In some cases information may not be avaliable. So write and explain what you did Total r(f)=risk free r(m)=average return on market a. What is the most recent stock price listed $ 38.90 5/1/2016 b. How many shares outstanding does the company have outstanding? 1,496,000,000 c. What is the market value of the equity or market capitalization? $64,650,000,000.00 on April 26, 2016 d. What is the most recent dividend paid $/share 1.04 on April 26, 2016 e. What is the stock´s Beta 1.47595 on April 26, 2016 e f. On Yahoo!, go to the bonds link. What is the 3-month Treasury Bill Yield? 0.20 on April 26, 2016 r(f)=risk free g. Assuming a market risk premium of 7% (check out chapter 10 for statistics behind this number), calculate the cost of equity using CAPM model. 0.813% 7% E(Ri) = Rf + [E(RM) – Rf] × i h. Calculate the cost of equity using the dividend discount model. (Go to SEC Edgar and look at the last 10-K report. Look at dividends paid for the historical periods reported and calculate the dividend growth rate. Can you calculate the cost of equity using this method? $ 10.27 Re = Do x (1+g) /Po +g Assumed 12.13% from Yahoo finance Assumed 2.0 dividend growth from SEC filings i. What is the cost of capital using questions g and h above. j. and k. Fill in the table below: write the bonds characteristics, including yield to maturity or each bond outstanding. l. Calculate the weighted average cost of debt both using Book Value and Market Value and compare. What effect would using one over the other have when you calculate the cost of debt? (Note in the case of bank debt use the book value of the debt for both calculations) Weighted Cost of Debt Coupon Maturity Price YTM Current Yield Book Value No of Bonds Issued Market Value BV Market 6.15% 30-Nov-37 134.33 3.879 4.578 576000 5.13% 1-Apr-19 115.24 1.473 4.447 250000 6% 1-Apr-39 132.99 3.89 4.512 200000 4.13% 27-May-20 111.11 1.976 3.713 985000 5.30% 27-May-40 123.75 3.831 4.283 168000 2% 2020 PAR 2% 750000 2.55% 2022 PAR 2.55% 750000 2.95% 2025 PAR 2.95% 1000000 Short Term Debt m. You now have the necessary information to calculate the WACC of the Company. Calculate it using Book Value weights and Market weights and compare. Tax Rate Assumption 35% Debt Equity Total Cost of Debt Cost of Equity WACC Part Note: This is a very hard project because it entails looking for info that many times is not obvious The most important is your thought process and assumtions how to arrive at the number/value. In some cases information may not be avaliable. So write and explain what you did Total r(f)=risk free r(m)=average return on market a. What is the most recent stock price listed $ 38.90 5/1/2016 b. How many shares outstanding does the company have outstanding? 1,496,000,000 c. What is the market value of the equity or market capitalization? $64,650,000,000.00 on April 26, 2016 d. What is the most recent dividend paid $/share 1.04 on April 26, 2016 e. What is the stock´s Beta 1.47595 on April 26, 2016 e f. On Yahoo!, go to the bonds link. What is the 3-month Treasury Bill Yield? 0.20 on April 26, 2016 r(f)=risk free g. Assuming a market risk premium of 7% (check out chapter 10 for statistics behind this number), calculate the cost of equity using CAPM model. 0.813% 7% E(Ri) = Rf + [E(RM) – Rf] × i h. Calculate the cost of equity using the dividend discount model. (Go to SEC Edgar and look at the last 10-K report. Look at dividends paid for the historical periods reported and calculate the dividend growth rate. Can you calculate the cost of equity using this method? $ 10.27 Re = Do x (1+g) /Po +g Assumed 12.13% from Yahoo finance Assumed 2.0 dividend growth from SEC filings i. What is the cost of capital using questions g and h above. j. and k. Fill in the table below: write the bonds characteristics, including yield to maturity or each bond outstanding. l. Calculate the weighted average cost of debt both using Book Value and Market Value and compare. What effect would using one over the other have when you calculate the cost of debt? (Note in the case of bank debt use the book value of the debt for both calculations) Weighted Cost of Debt Coupon Maturity Price YTM Current Yield Book Value No of Bonds Issued Market Value BV Market 6.15% 30-Nov-37 134.33 3.879 4.578 576000 5.13% 1-Apr-19 115.24 1.473 4.447 250000 6% 1-Apr-39 132.99 3.89 4.512 200000 4.13% 27-May-20 111.11 1.976 3.713 985000 5.30% 27-May-40 123.75 3.831 4.283 168000 2% 2020 PAR 2% 750000 2.55% 2022 PAR 2.55% 750000 2.95% 2025 PAR 2.95% 1000000 Short Term Debt m. You now have the necessary information to calculate the WACC of the Company. Calculate it using Book Value weights and Market weights and compare. Tax Rate Assumption 35% Debt Equity Total Cost of Debt Cost of Equity WACCExplanation / Answer
COST OF EQUITY = CAPM APPROACH = 8.13%
COST OF EQUITY = DIVIDEND METHOD = 10.27%