In the WACC Sensitivity tab on the accompanying spreadsheet, alter the cells as described below to see how changes to WACCs inputs impact the WACC. Write a few sentences describing each change.

FED RATE INCREASE

An increase of the Federal Reserve interest rate by 200 basis points (2.0%) lifts the borrowing costs of every debt issuer. What is Disney's adjusted WACC?

CREDIT RATING CHANGE

A downgrade in Disney's credit rating should increase its cost of debt to the same level as Six Flags, all other conditions being equal. What is Disney's adjusted WACC?

DEBT FOR ACQUISITION

In 2018, Disney announced it would acquire Twenty-First Centry Fox assests for $71.3 billion. Assume Disney paid for the acqui- sition in cash by raising additional debt. What is Disney's adjusted WACC?

U.S. EQUITY MARKET DOWNTURN

Equity market expectations may cool resulting in an expectation that equity markets may only expand by 200 basis points (2.0%) over the coming year. What is Disney's adjusted WACC?

INCREASED MARGINAL TAX RATE

The tax rate cut has ended. A new administration is in power. Assume Disney's marginal tax rate rises to 30.0%. What is Disney's adjusted WACC?

Output:

Weighted Average Cost of Capital Scenario Changes WACC Cost of Capital Components Expected Return of Risk Free Pre-Tax Market Rate Tax Rate Debt Cost Bond Rating Capital Structure Components Short-Term Long-Term Equity Debt Debt Total Capital Beta Target Disney Six Flags 0.96 A 21,923 7.9% 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 36,311 2,467 306,933 6,676 0.89 B+ 19 6.3% Fed Rate Move Disney Six Flags 0.96 A 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% 0.89 B+ Credit Rating Change Disney 0.96 Six Flags 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% Additional Debt for Fox Acquisition Disney 0.96 Six Flags 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% Bear Stock Market Disney Six Flags 7.9% 0.96 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 6.3% Tax Rate Increases Disney 0.96 0.89 9.6% 21,923 7.9% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 36,311 2,467 306,933 6,676 Six Flags 9.6% B+ 19 6.3% Weighted Average Cost of Capital Scenario Changes WACC Cost of Capital Components Expected Return of Risk Free Pre-Tax Market Rate Tax Rate Debt Cost Bond Rating Capital Structure Components Short-Term Long-Term Equity Debt Debt Total Capital Beta Target Disney Six Flags 0.96 A 21,923 7.9% 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 36,311 2,467 306,933 6,676 0.89 B+ 19 6.3% Fed Rate Move Disney Six Flags 0.96 A 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% 0.89 B+ Credit Rating Change Disney 0.96 Six Flags 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% Additional Debt for Fox Acquisition Disney 0.96 Six Flags 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 7.9% 6.3% Bear Stock Market Disney Six Flags 7.9% 0.96 0.89 9.6% 9.6% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% A B+ 248,699 4,190 21,923 19 36,311 2,467 306,933 6,676 6.3% Tax Rate Increases Disney 0.96 0.89 9.6% 21,923 7.9% 2.4% 2.4% 21.8% 24.2% 3.0% 4.2% 248,699 4,190 36,311 2,467 306,933 6,676 Six Flags 9.6% B+ 19 6.3%