Deliverable

Write a two or three page report that contains the following elements:

• Your calculated WACC
• How data were used to calculate WACC. This would be the formula and the formula with your values substituted.
• Sources for your data.
• A discussion of how much confidence you have in your answer. What were the limiting assumptions that you made, if any?

Second Project The purpose of this project is for you to have some practice working with financial concepts in the real world. This will involve integrating some material from throughout the course. The project will also involve the development of your own approach to doing the work. The project does not provide a stepby-step procedure for you to follow. Your task is to determine the WACC for a given firm using what you know about WACC as well as data you can find through research. Your deliverable is to be a brief report in which you state your determination of WACC, describe and justify how you determined the number, and provide relevant information as to the sources of your data. With the help of your professor, you have selected a company for which to research and find the WACC. Your research is to be independent from any information you may find at thatswacc.com or similar sites, although you might want to use such sites to provide a reasonableness check on the WACC that you calculate. Assumptions As you recall, the formula for WACC is rWACC = (E/E+D) rE + D/(E+D) rD (1-TC) The formula for the required return on a given equity investment is ri= rf + i * (RMkt-rf) RMkt-rf is the Market Risk Premium. For this project, you may assume that the Market Risk Premium is 4%, unless you can develop a better number. rf is the risk-free rate. The YTM on 10-year U.S. Treasury securities is a good approximation. You may assume a corporate tax rate of 40%. One good source for financial data for companies as well as data about their equity is http://finance.yahoo.com. By looking around this site, you should be able to find the market capitalization (E) as well as the for any publicly traded company. There are not many places left where data about corporate bonds is still available. One of them is http://finra-markets.morningstar.com/BondCenter. To find data for a particular company's bonds, find the Quick Search feature. Then, be sure to specify corporate bonds and type in the name of the issuing company. This should give you a list of all of the company's outstanding bond issues. Clicking on the symbol for a given bond issue will lead you to the current amount outstanding and the yield to maturity. You are interested in both. The total of all bonds outstanding is D in the above formula. If you like, you can use the YTM on a bond issue that is not callable as the pre-tax cost of debt for the company. Deliverable Write a two or three page report that contains the following elements: 1. Your calculated WACC 2. How data were used to calculate WACC. This would be the formula and the formula with your values substituted. 3. Sources for your data. 4. A discussion of how much confidence you have in your answer. What were the limiting assumptions that you made, if any? Rubric - Second Project Possible Points Data Calculations Evaluation Form Criteria and Point Range 15 0-3 4- 7 Little or no data Unclear relationship provided. Source of between data and data not clear. variables. 8-11 Data mostly corresponds to variables. 15 0-3 Calculations not provided or are generally incorrect. 4- 7 Not all calculations provided or some calculations are incorrect. 8-11 Calculations are nearly but not totally provided or correct. 10 0-2 Evaluation of answer or limitations and assumptions not discussed. 3- 4 Either evaluation of answer or discussion of limitations and assumptions missing or minimal. 5- 7 Evaluation of answer and discussion of limitations and assumptions provided. Missing some limitations or assumptions. 0-2 Significant problems with writing or format. 3- 4 Minor problems with writing or format. 5- 7 Writing and format generally correct with a few exceptions. 10 50 12-15 Relationships between data and variables clear and correct. 12-15 Calculations are provided and are correct. 8-10 Complete and thorough discussion of confidence in answer based on limitations and discussions. 8-10 Virtually no errors in writing or format. How to Approach your second FIN515 Course Project Due: End of Week 6 WACC formula: WACC = were + wdrd (1-T) Step 1: Determine we and wd a) Go to Balance Sheet. For we, find Total Equity amount. For wd, find Total Liabilities, making sure to subtract any accounts payable or accrual amounts (non-interest-bearing debt) from the total. b) we = Total Equity / (Total Liabilities + Total Equity) c) wd = Total Liabilities / (Total Liabilities + Total Equity) Step 2: Find T (the Tax Rate) a) Go to Income Statement. For T, find Income Tax Expense, and Income Before Tax (sometimes called Earnings Before Tax). b) T (in %) = Income Tax Expense / Income Before Tax Step 3: Find re a) Find the current 10-year bond rate using a Google search. This is your risk-free rate (rRF). b) Find the average return of an S&P500 Index Fund, and that is your market rate (RM). c) Use Yahoo Finance or other financial site to find your company's Beta (). d) Use the CAPM formula to solve for re = rRF + (RM - rRF ) e) If you absolutely cannot find RM, then substitute in 4% for MRP. Then use the revised CAPM formula to solve for re = rRF + (MRP). (Not the preferred method) Step 4: Find rd a) Go to Bond web site given in the Course Project instructions. Go to the Search page and search for your company. If your company is not there, you might want to consider another company! b) Once the list of bonds your company has issued shows up, scroll to find a bond that is 1) non-callable, and 2) has a maturity that is as close to 10 years out from now as possible. c) Select that bond. Go to the Info page for that bond and find 1) its coupon rate, and 2) if it is paid quarterly, semiannually, or whatever. Multiply the rate to make it annual, and that is your rd. Step 5: Compute WACC a) Plug all the figures you've just found into the WACC formula at the beginning of these instructions, compute away, and POW! There's your real-life WACC! b) And no - you may not use my instructions to fill in the part of your report that asks you how you calculated WACC. You need to write your own report