Estimate the current values of WACC for the following company: Adobe Systems (real world computer systems company; ticker ADBE). Utilize information from the newspapers (such as Wall Street Journal), the class notes, and the Internet. Follow the instructions in the consecutive order, and fill your responses after every instruction: Instructions a) Compute Cost of Equity: To get a full credit, you have to (briefly) explain your logic for choice of relevant parameters and provide the source of the parameter values. To estimate the value of Market Risk Premium, use the information from the Lecture Notes. DO NOT estimate the values of betas!!! Instead, rely on the information found on the Internet. These days, many corporate profiles at respectable websites provide beta values for every of the tracked companies. To get a full credit, you have to disclose your source of information regarding betas, so that I can verify it! (That is, provide a link for your company beta). Some useful sites: Value Line: http://valueline.com Nasdaq: http://www.nasdaq.com/ Damodaran Online: http://damodaran.com Yahoo Finance: http://finance.yahoo.com/ MSN Money: http://money.msn.com/investing/ b) Compute Cost of Debt: Use the website of FINRA: http://www.finra.org/ to see if your company has public debt, and to get the YTM of public debt. Hint: sometimes the debt issues are listed under the name of the companys subsidiary (especially for credit or finance subsidiaries). The subsidiary debt should *always* be counted. So, work with ALL bond issues that you get after entering the companys symbol in your search query. Hint 2: If the issue listed on FINRA does not have a positive yield or if maturity or amount outstanding is missing DISREGARD that particular issue! If you cant get YTMs, and would like to get companys debt rating, this website can help:. http://www.standardandpoors.com or http://moodys.com (always use LONG TERM rating) If you cant get the companys debt rating, the rating spreadsheet on http://damodaran.com can help. (http://www.stern.nyu.edu/~adamodar/pc/ratings.xls ) This rating spreadsheet should also help you transform debt ratings into default spreads. If you need average default spreads for various debt ratings, find them in my lecture notes (what we referred to as Golden Slide). If you need most recent Treasury Bond rates, go to the US Treasury website: http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml c) Compute Weights: Use the Nasdaq website https://www.nasdaq.com/symbol/adbe/financials?query=balance-sheet to get the most recent financial statements. It provides both annual and quarterly data. Always try to use the *most recent* data (so check whether you get them from the annual or quarterly columns). Use the Balance Sheet values of long-term debt (incl. leases) and short-term debt (incl. Notes Payable) to estimate the value of debt. Do not consider non-interest bearing liabilities (such as accounts payable) a form of debt (basically, if it doesnt say debt, or notes payable, or leases, then it is not debt.). On the other hand, disregard Other Current Liabilities and Other Non-Current Liabilities when computing the value of debt. Deferred Income Taxes (if any) and Minority Interests (if any) should be considered a form of equity investment (despite being usually listed under liabilities). Record them at their book values listed on the Balance Sheet. Disregard preferred stocks (if any) in computation of WACC d) Compute WACC