In this project, the student will find and discern the appropriate data to determine a realistic assessment of the weighted average cost of capital for a firm of his/her choosing.
The student will need to search for data from several sources, use subjective judgment to determine which data to use or discard, use subjective judgment to determine which calculation gives a more acceptable estimate and make some simplifying assumptions.
The purpose of the projects is to show some of the sources of measurement errors in financial analysis, to introduce the diverse sources of publicly available financial information and to develop skill in analysis in situations where there are too much or too little data.
- Equation with data and descriptions:Pages showing equations with data and brief description. Detailed descriptions, tables of data and excel sheets etc will be in the appendix.
- Cost of Equity (Common Stock
- Beta from Regression and two Betas from analysts
- Beta Chosen for CAPM and why
- Capital Assets Pricing Model (include how determined RF and[ RM or (RM – RF)]
- Discounted Cash Flow (DCF) (only if dividends – include how determined growth rate)
- Own-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine risk premium)
- Cost of Preferred Stock
- Cost of Debt (make sure to include table that lists all bond issues with weighted average cost of debt)
- Market Value of Debt (will have calculated above, but will need to add any long term leases from balance sheet to get total market value of debt)
- Market Value of Equity
- 13. Market Value of Preferred Stock
- Value of Firm
- Firm’s Tax Rate (explain how determined)
- Weight for Equity
- Weight for Preferred Stock
- Weight for Debt
- WACC (Weighted Average Cost of Capital)
- Assumptions: including but not limited to RF , RM, Rm – RF. growth rate of dividends. This page should have a brief description of how you came up with the estimates with spreadsheets, etc. to be put in the appendix.
- Appendix: Appendix should include all relevant data including debt data from Morningstar, calculations of weighted average cost of debt, stock returns, betas from analysts, beta regression analysis, method/sourcing for RF and RM, growth rates for dividends, different methods to determine tax rates, etc.