EMPIRICAL RESULTS For Walmart

1. Rate of Return

E-views was used to calculate the sum of the dividend yield and capital gain.

WMT

Dividend Yield for WMT (_WMT) = _WMT x 400 Dividend Yield for WMT (_WMT) = 1.41%

(WMT-WMT(1))

Capital Gain for WMT (_WMT) = _{WMT (1)} x 1200

Capital Gain for WMT (_WMT) = 0.2billion

Rate of Return (_WMT) = Dividend Yield for WMT (_WMT) + Capital Gain for WMT (_WMT)

Rate of Return (_WMT) = 1.890 + 6.947 =8.837%

2. Estimating Beta

The approximate beta () is determined through the rate of return of WMT (_WMT) and the return of the market ()

(1)

= ₍₁₎ x 1200

(1)

= ₍₁₎ x 1200

= 8.545%

_WMT = 8.837%

WMT = WMT + WMT +

_WMT = 3.274 + 0.651

_WMT = 0.651

= 1

Dependent Variable: RWMT

Method: Least Squares

Date: 010/19/23 Time: 19:06

Sample (adjusted): 1990M01 2022M08

Included observations: 392 after adjustments

C	3.27469	4.105332 0.797668	0.4255
RDJIA	0.650989	0.080701 8.066643	0
R-squared	0.14299	Mean dependent var	8.837221
Adjusted R-squared	0.140793	S.D. dependent var	86.44258
S.E. of regression	80.12659	Akaike info criterion	11.61018
Sum squared resid	2503905	Schwarz criterion	11.63044
Log likelihood	-2273.6	Hannan-Quinn criter.	11.61821
F-statistic	65.07073	Durbin-Watson stat	2.139828
Prob(F-statistic)	0

3. Expected Rate of Return

Using CAPM equation

E(WMT) = + WMT[(RDJIA) RRF]

Where, = 5.07%, (R_DJIA) = 8.545%, _WMT = 0.651

(_WMT) = 7.332%

4. Weighted Average Cost of Capital (WACC)

= (1 ) + +

Long term interest I

Calculating the cost of debt (_d) = _{Long term debt} = _D

KWMTD = 34865,928 = 0.0248 or 2.48%

K^WMT_S = E(R_WMT) = 7.332%

The value line, V = D + S will be used to estimate the weight.

V = 52.907 + 425 = 477.907 billion

WWMTd = DV = 47752.907.907 = 0.1107 or 11.07%

WWMTS = VS = 477425.907 = 0.88929 or 88.929%

KWMTWACC = WJdNJ x KdWMT(1-T) + WWMTS x KSWMT

Where, T = 0.16

K^WMT_WACC = 11.07 x 2.48(1-0.16) + 88.929 x 7.332 = 6.751%

5. Dividend Policy

Estimating (lambda) will provide the dividend policy.

The function of the equation is R_WMT stt3m (R_DJIA - stt3m) _WMT

Lambda () = 0.6254

Obtaining the Pairwise Granger Causality tests, we accept the null hypothesis since the probability (0.5396) is greater than the F-Statistic (0.6179).

Dependent Variable: RWMT

Method: Least Squares

Date: 06/15/23 Time: 19:11

Sample (adjusted): 1990M01 2021M09

Included observations: 381 after adjustments

STT3M	1.259213	1.285155	0.979814	0.3278
RDJIA-STT3M	0.657925	0.082813	7.944712	0

DYWMT 0.625424 2.046446 0.305615 0.7601

R-squared	0.141621	Mean dependent var	8.982829
Adjusted R-squared	0.137079	S.D. dependent var	87.12382
S.E. of regression	80.93239	Akaike info criterion	11.63295
Sum squared resid	2475920	Schwarz criterion	11.66399
Log likelihood	-2213.08	Hannan -Quinn criter.	11.64527
Durbin-Watson stat	2.146744

Pairwise Granger Causality Tests

Date: 07/05/23 Time: 19:14

Sample: 1990M01 2022M12

Lags: 2

Null Hypothesis: Obs F-Statistic Prob.

RWMT does not Granger Cause

DYWMT 390 1.13597 0.3222

DYWMT does not Granger Cause RWMT 0.6179 0.5396

6. Covering Historic Rate Premium

The historic rate premium is used to determine whether a stock is underpriced or overpriced.

R_WMT = R_RF + HRP

Where, HRP = HR_WMT - HR₃mT-bill

Therefore, R_WMT = 8.837%

The expected return for Johnson and Johnson is 7.332% and its historical risk premium is 8.837%. This means that the historical risk premium is higher than the expected return and therefore, the company is overpriced. It is advised investors sell their stock in the company.