Let’s assume a corporate tax rate of 35%. If you calculate them correctly, the proportions will add up to one.Now we have all the information we need to get at least a rough ballpark estimate of WACC. The proportion of equity will be shareholder’s equity divided by total value, or E/V. The total value of your company will be “total liabilities and shareholder’s equity.” The proportion of debt will be total liabilities divided by total value, which we will call D/V. For the total value, look at the balance sheet for your company as found on Google Finance or a similar Web page. We will call the cost of equity RE.Now find out how much of the firm's capital is equity and how much is debt.
NAVICAT DATA MODELER LOGICAL TO PHYSICAL PLUS
Once you have this information, you can estimate the cost of equity as the 30-year treasury bill yield rate plus beta multiplied by the equity premium:Cost of Equity = risk-free rate + Beta * (Equity Premium).Show your calculations. You can find estimates of this on many Web pages including Fidelity Fixed Income or Gutenberg Research. Finally, you will need the equity risk premium.
This rate should be listed on the Fidelity Fixed Income Web page linked above. You will also need the three-month treasury bill yield, which we will use as our measure of the risk-free rate. First you will need the beta you already found this for your Module 1 SLP. We will call the cost of debt RD.Now estimate the cost of equity for your company. This yield will be the approximate cost of debt capital for your company. Also, use the Fidelity Fixed Income Web page to find out what the current return is for a 30-year bond for a corporation with the rating that your company has. Explain what your company’s credit rating is and the reasons for the high or low rating based on your research.
The higher the rating, the lower the cost of debt capital. AAA is high, AA is lower, BBB is even lower, etc. Rating agencies such as Moody’s and Standard and Poor’s assign ratings to companies. Make sure to show all of your steps one by one and include the sources of your information:Find out your chosen company's credit rating. Go step by step and present your information for Steps 1-4 below in a Word document. Links to some suggested Web pages for finding this kind of information is included in the instructions, but you might be able to find other sources of information. You will need information such as the beta for your company, the bond-rating, and various information from its balance sheet. However, the more challenging task will be finding the necessary numbers to plug into the formulas. The final calculation will be fairly straightforward, as it involves just plugging in some numbers into an equation. For this assignment, you will be estimating the weighted average cost of capital (WACC) for your chosen company. Data Modeling Tools – Technical Properties and Attributesįor your Module 3 SLP assignment, continue to do research on the company that you wrote about for Modules 1 and 2.
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