Find the WACC for Heinz: EXHIBIT $12\mathrm{.}3$ I Capital Market Data $($yields and prices as of the last trading day in April of the year indicated$)$

Note that bond data were slightly modified for teaching purposes.

Data sources: Federal Reserve, Value Line, Morningstar, and case writer estimates.

$1$ The $20-$year yield is used for $2003-05,$ when the $30-$year was not issued.

Sheppard gathered some market data related to Heinz $($also shown in Exhibit $12\mathrm{.}3).$ He easily obtained historic stock price data. Most sources he accessed estimated the

company's beta using the previous five years of data at about $0\mathrm{.}65\mathrm{.}5$ Sheppard obtained prices for two bonds he considered representative of the company's outstanding borrowings:

a note due in $2032$ and a note due in $2012.$ Heinz had regularly accessed the commercial paper market in the past, but that market had recently dried up$.$ Fortunately, the company

had other sources for short$-$term borrowing and Sheppard estimated these funds cost about $1\mathrm{.}20\%.$

What most surprised Sheppard was the diversity of opinions he obtained regarding the market risk premium. Integral to calculating the required return on a company's equity

using the capital asset pricing model, this rate reflected the incremental return an investor required for investing in a broad market index of stocks rather than a riskless bond. When

measured over long periods of time, the average premium had been about $7\mathrm{.}5\%.$ But when measured over shorter time periods, the premium varied greatly; recently the premium

had been closer to $6\mathrm{.}0\%$ and by some measures even lower. Most striking were the results of a survey of CFOs indicating that expectations were for an even lower premium in the

near future$-$close to $5\mathrm{.}0\%.$ On the other hand, some asserted that market conditions in $2010$ only made sense if a much higher premium$-$something close to $8\%-$were assumed.

As Sheppard prepared for his cost of capital analysis and recommendation, he obtained recent representative data for Heinz's three major U$.$S$.$ competitors $($Exhibit $12\mathrm{.}4).$ This

information would allow Sheppard to generate cost$-$of$-$capital estimates for these competitors as well as for Heinz. Arguably, if market conditions for Heinz were unusual at the

time, the results for competitors could be more representative for other companies in the industry. At the very least, Sheppard knew he would be more comfortable with his

recommendation if it were aligned with what he believed was appropriate for the company's major competitors.