Name of Company/Stock	Hewlett-Packard Company (HPQ)
Ticker Symbol	HPQ

From the http://thatswacc.com/ results for your company:

WACC	10.57%
Cost of debt, iD	0%
Corporate tax rate, TC	322.57%
Total debt, D	21,056,000,000
Total equity, E	69,030,000,000
Total firm value, V	90,086,000,000
Cost of equity, iE	13.80%

CAPM Components

Beta, ?	1.35
Historical market return, iM	Assumed 11%
Risk-free rate, iF	Assumed 3%

Using data in the table confirm the accuracy of the sites WACC calculation:

Weight of Equity		76.63%
Weighted Average Cost of Equity	E	10.57%
Weight of Debt		23.37%
Pre-Tax Weighted Average Cost of Debt	D	0%
After-Tax Weighted Cost of Debt	D (1- TC)	0%
Weighted Average Cost of Capital	= iE + iD (1-Tc)	10.57%

1. For the firm selected for Part A, calculate its internal growth rate for the last fiscal year:

= (ROA ? RR) / [1-(ROA ? RR)]

=(0.0528 x .7183)/[1-(0.0528 x .7183)]

=0.0394213 or 3.9%

2. Calculate the firms sustainable growth rate for the last fiscal year:

= (ROE ? RR) / [1-(ROE ? RR)]

= (0.1830 x .7183) / [1-(0.1830 x .7183)] = 0.1513 or 15.13%

Part C.

Consider your results for Parts A and B. If the chosen firm grows at its internal growth rate, increasing assets only with its retained earnings, how will this likely affect its WACC? Show calculations.

As the company continues to contribute the equity and leave debt unchanged the ratio of proportion of equity will increase 100% and the debt will decrease 0%, the WACC will eventually approach 13.8%, which is also the cost of equity.

If the chosen firm grows at its sustainable growth rate with increases in both its retained earnings and debt, maintaining a constant debt ratio, how will this affect its WACC?

If the firm grows at its sustainable growth rate with increases in both its retained earnings and debt, maintaining a constant debt ratio, the WACC will remain the same, which is 10.57%.

If the chosen firm attempts to grow faster than its sustainable growth rate with modest increases in its debt ratio, how will this likely affect its WACC? What about very large increases in its debt ratio? Explain.