Note: Please make sure to review the accompanying video for this assignment, to ensure that you are getting the data from the correct sources. In Chapter 10, we described how to estimate a company's WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Twacc = wdra (1 - 1) + Wy>+wsts Most of the data we need to do this can be found from various data sources on the Internet. I want you to get an estimate of the WACC of Walmart Inc. (Ticker: WMT.) As a first step, you need to estimate what percentage of Walmart's capital comes from debt, preferred stock, and common equity. This information can be found on the firm's latest annual balance sheet. You can access the historical balance sheets of Walmart on Yahoo!Finance.' Go to Yahoo! Finance and search for "WMT" and then click on Financials. Note as of 01/31/2021, Walmart had no preferred stock. Total debt includes all interest-bearing long-term debt. 1. Recall that the weights used in the WACC are based on the company's target capital structure. If you assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for Walmart? Find Walmart's market capitalization, which is the market value of its common equity. This can be found by multiplying the current share price of Walmart with its outstanding number of shares (see under "Statistics" on Yahoo!Finance.) Assume that the market value of its debt equals its book value. Now using the market values, recalculate the weights to be used in the WACC equation. Note: make sure that the value of equity and debt are measured in the same scale. III. You can use CAPM to estimate Walmart's cost of equity. rs=r;+B (ET) - r,]=r,+B.(E(RP)] Go to the U.S. Department of the Treasury website and obtain their estimates for the "Daily Treasury Yield Curve Rates" (Homepage Data Interest Rate Daily Treasury Yield Curve Rates). You can use the 10-year Treasury yield as your estimate of the risk-free rate (rp). Go to Yahoo!Finance (see under "Statistics") and use their estimate of beta (B) for Walmart. You can estimate the market risk premium in several ways. Aswath Damodaran, a professor at NYU provides estimates of the market risk II. https://financavahoo.com/ https://home.treasury.com/ premium. According to his data the average implied market risk premium over the period of 2010-2020 was 5.61%. Let's use that as our estimate of the market risk premium. a) How would you interpret the Beta reported by Yahoo!Finance for Walmart? (i.e., comment of how risky/volatile the stock is.) b) What is your estimate for Walmart's cost of equity? Next, you need to calculate Walmart's cost of debt. Go to FINRA's Bond Center* and do a quick search for Walmart's bond issues (Search+Symbol/CUSIP = WMT). IV. A longer-term issue's YTM (Yield) could provide an estimate of the firm's current cost of debt to be used in the WACC calculation. Since you used the 10-year Treasury yield as your risk-free estimate, use the yield on any Walmart bond that is going to mature in 10 years (i.e., mature in 2031). If there is no bond maturing in 2031, then use the yield on a bond that will mature in 2030. Remember that you need the after-tax cost of debt to calculate a firm's WACC; use 31% as the tax rate for Walmart What is your estimate of Walmart's after-tax cost of debt? V. Now you have all the elements to calculate the WACC for Walmart. a) What is your estimate of Walmart's WACC using the book-value weights calculated in part (I) above? b) What is your estimate of Walmart's WACC using the market value weights calculated in part (II) above? Note: Please make sure to review the accompanying video for this assignment, to ensure that you are getting the data from the correct sources. In Chapter 10, we described how to estimate a company's WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Twacc = wdra (1 - 1) + Wy>+wsts Most of the data we need to do this can be found from various data sources on the Internet. I want you to get an estimate of the WACC of Walmart Inc. (Ticker: WMT.) As a first step, you need to estimate what percentage of Walmart's capital comes from debt, preferred stock, and common equity. This information can be found on the firm's latest annual balance sheet. You can access the historical balance sheets of Walmart on Yahoo!Finance.' Go to Yahoo! Finance and search for "WMT" and then click on Financials. Note as of 01/31/2021, Walmart had no preferred stock. Total debt includes all interest-bearing long-term debt. 1. Recall that the weights used in the WACC are based on the company's target capital structure. If you assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for Walmart? Find Walmart's market capitalization, which is the market value of its common equity. This can be found by multiplying the current share price of Walmart with its outstanding number of shares (see under "Statistics" on Yahoo!Finance.) Assume that the market value of its debt equals its book value. Now using the market values, recalculate the weights to be used in the WACC equation. Note: make sure that the value of equity and debt are measured in the same scale. III. You can use CAPM to estimate Walmart's cost of equity. rs=r;+B (ET) - r,]=r,+B.(E(RP)] Go to the U.S. Department of the Treasury website and obtain their estimates for the "Daily Treasury Yield Curve Rates" (Homepage Data Interest Rate Daily Treasury Yield Curve Rates). You can use the 10-year Treasury yield as your estimate of the risk-free rate (rp). Go to Yahoo!Finance (see under "Statistics") and use their estimate of beta (B) for Walmart. You can estimate the market risk premium in several ways. Aswath Damodaran, a professor at NYU provides estimates of the market risk II. https://financavahoo.com/ https://home.treasury.com/ premium. According to his data the average implied market risk premium over the period of 2010-2020 was 5.61%. Let's use that as our estimate of the market risk premium. a) How would you interpret the Beta reported by Yahoo!Finance for Walmart? (i.e., comment of how risky/volatile the stock is.) b) What is your estimate for Walmart's cost of equity? Next, you need to calculate Walmart's cost of debt. Go to FINRA's Bond Center* and do a quick search for Walmart's bond issues (Search+Symbol/CUSIP = WMT). IV. A longer-term issue's YTM (Yield) could provide an estimate of the firm's current cost of debt to be used in the WACC calculation. Since you used the 10-year Treasury yield as your risk-free estimate, use the yield on any Walmart bond that is going to mature in 10 years (i.e., mature in 2031). If there is no bond maturing in 2031, then use the yield on a bond that will mature in 2030. Remember that you need the after-tax cost of debt to calculate a firm's WACC; use 31% as the tax rate for Walmart What is your estimate of Walmart's after-tax cost of debt? V. Now you have all the elements to calculate the WACC for Walmart. a) What is your estimate of Walmart's WACC using the book-value weights calculated in part (I) above? b) What is your estimate of Walmart's WACC using the market value weights calculated in part (II) above