Purpose of the project:

In this project, you are supposed to be a financial manager to apply the knowledge obtained from the Financial Management (FINC6352) course to estimate the cost of debt, cost of preferred stock, cost of common equity, capital structure, and the weighted average cost of capital (WACC) for a publicly traded corporation of your choice. You will use the estimated WACC as the discount rate to perform capital budgeting analysis for a hypothetical project (the data is given below) that is under consideration by the selected company, and decide whether the project should be accepted.

Please note: The selected firm is P&G (Procter & Gamble).

INCOME STATEMENT, BALANCE SHEET & CASH FLOW GRAPHS can be retrieved from Yahoo finance.com.

(1) Estimate Capital Structure

- Estimate the firm's weights of debt, preferred stock, and common stock using the firm's balance sheet (book value).

- Estimate the firm's weights of debt, preferred stock, and common stock using the market value of each capital component.

(2) Compute Weighted Average Cost of Capital (WACC)

- Estimate the firm's before-tax and after-tax component cost of debt; (Note: If the information about the current corporate tax rate is not available, you need to estimate the tax rate based on the historical tax payments).

- Estimate the firm's component cost of preferred stock if the firm has issued preferred stocks.

- Use three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the component cost of common equity for the firm.

- Calculate the firm's weighted average cost of capital (WACC) using the market-based capital structure weights.

(3) Capital Budgeting Analysis

-Using the WACC obtained from in Step (2) as the discount rate for this project, apply capital budgeting analysis techniques (NPV, IRR, MIRR, PI, Payback, Discounted Payback) to analyze the new project.

- Perform asensitivity analysisfor the effects of key variables (e.g., sales growth rate, cost of capital, unit costs, sales price) on the estimated NPV or IRR in order to demonstrate the sensitivity of the model.

- Discuss whether the project should be taken and summarize your report.