Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I have started the attached excel spreadsheet, but I am not sure on what to put in for the cost of equity, cost of debt

image text in transcribed

I have started the attached excel spreadsheet, but I am not sure on what to put in for the cost of equity, cost of debt and the WACC. I have also included links to all the information, I'm just not sure on how to enter it into the calculations:

1.Go to Yahoo Finance (http://finance.yahoo.com) and capture the income statement information for the company you selected. (Coca Cola)

a.Enter your company's name or ticker symbol. Your company's information should appear.

b.Click on the Financials tab, and select the income statement option. Three years' worth of income statements should appear. Copy and paste this data into a spreadsheet.

c.Repeat step b. above for the balance sheets of the company.

d.Click on "Historical Prices." Capture the closing price of the stock as of the balance sheet date for the three fiscal years used in steps b and c above.

2.Calculate the Weighted Average Cost of Capital (WACC) for the company:

a.Cost of Debt

i.Determine the market value of the firm's debt issues. Be sure to review the firm's 10-K. Also, the website http://finra-markets.morningstar.com/BondCenter may be of assistance.

ii.You will need to calculate the firm's composite YTM on its bonds. This can be achieved by calculating a weighted-average YTM for its bond issues.

iii.After calculating the YTM for the bond issues, calculate the firm's after-tax cost of debt. If the firm's marginal tax rate cannot be identified in its 10-K, assume that the tax rate will be 35%.

b.Cost of Equity

i.Calculate the firm's cost of equity using the capital asset pricing model (CAPM). The formula for the CAPM is ri = rf + ?i (RMkt - rf).

ii.Assume the risk-free rate (rf) is the current rate of 10-year U.S. Treasury Bonds.

iii.Calculate the market rate (RMkt) by calculating the market return on the Standard & Poor's 500 for the past 2 calendar years.

iv.The beta for the firm can be obtained from Yahoo! Finance.

c.Calculate the WACC

i.Determine the market capitalization of the firm's common equity and preferred equity, if any.

ii.Determine the firm's capital structure based on the market value of the firm's equity and debt. The market value of the firm's debt can be obtained from the Morningstar website, listed in the Cost of Debt section above.

iii.Calculate the WACC. As you recall, the formula for WACC is rWACC = E (E + D) rE + D (E + D) rD (1 - TC).

Deliverable

Prepare PowerPoint presentation that shows the steps you performed to calculate the WACC for your firm. Feel free to embed your Excel spreadsheets in the presentation to demonstrate your calculations. Be sure to discuss how the values were obtained or derived to arrive at your WACC result. Finally, be sure to discuss any strengths or limitations in the calculations you performed, and discuss your analysis about the overall validity of your results.

http://www.coca-colacompany.com/content/dam/journey/us/en/private/fileassets/pdf/investors/2016-AR-10-K.pdf

http://finra-markets.morningstar.com/BondCenter/Results.jsp

https://finance.yahoo.com/quote/KO/history?period1=1420012800&period2=1483171200&interval=1wk&filter=history&frequency=1wk

image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials of Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

10th edition

77835425, 978-0077835422

More Books

Students also viewed these Finance questions

Question

What are operational and analytical databases?

Answered: 1 week ago

Question

What is SQL? What are DDL and DML?

Answered: 1 week ago

Question

How do we add a reference to a .dll file in VB.NET?

Answered: 1 week ago