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Wal-Mart Cost of Capital Wal-Mart, with $55 billion in sales in 1992, 3 percent in 1993. Based on dividends to s the world's largest retailer.21 It operates date, dividends per share during the year nearly 2,000 Wal-Mart discount stores in 1993 were expected to be $.12. Historical the United States, approximately 200 Sam's dividends per share and carnings per share Clubs membership-warehouse stores, and were as shown at the bottom of this page specialty distribution segment that serves Wal-Mart's balance sheet, of January 31 0,000 convenience stores and independ 1993, summarizes the company's financial ent grocers. Discount stores' sales ac- structure (Table 16-3). Most of the com counted for 73 percent of 1992 sales. Mem pany's debt was not actively traded. How bership club sales were the second-largest cver, the company disclosed in a note to area, accounting for 22 percent of 1992 the financial statements that long-term sales. The remaining 5 percen of W debt with a book value of $3.073 had a fair Mart's sales were accounted for by McLane market value of $3.357 billion. Assuming & Western convenience store and inde the average stated rate on outstanding se- pendent grocer supply division. Thus, Wal- curities was 7.5 percent, the yield to matu Mart was one of the companies that had re- rity would be 6.87 percent. It was assumed sisted the trend toward diversifying into er long-term debt would sell at a everything from aardvarks to zymometers. siilar yield to maturity if the debt were Concentration did not mean lack of publicly sold. growth, however. New capital expendi Wal-Mart was a heavy user of commer- tures in 1992 alone were $3.5 billion, plus cial paper with an average daily balance an associated investment in working capi outstanding for 1992 of $1.184 billion tal of $1.8 billi. If Wal-Mart was to make The weighted average before tax interest optimal capital investment decisions, it raeon this paper was 3.5 percent was clear that an accurate estimate of thMart has $1.818 billion in capital lease obligations on the balance sheet. In Wal-Mart presently had 2.3 the footnote there is a historical 8 to shares of common stock outstanding. The 14 percent imputed discount rate used in stock had a beta of 1.3 and was selling at calculating this obligation. Given the over- 30 a share in 1992. The yield to maturity decline in interest rates, the lower end on U.S. Treasury bonds was 6.5 percen, of the range, or 8 percent, is probably the and Treasury bills were seling to yield betr estimate of what future leases wil cost of capital was n eeded 1989 1990 9 1992 YEAR Dividends 0 .01 Earnings 06 09 .12 5 20 28 37 4857 70 .87 1982 1983 1984 985 198697 19B .01 02 02 . 03 04 06 07 09 This analysis, along with necessary estinates, was prepared by the author and does not represent the views of managers at Wal-MarL Wal-Mart Cost of Capital Wal-Mart, with $55 billion in sales in 1992, 3 percent in 1993. Based on dividends to s the world's largest retailer.21 It operates date, dividends per share during the year nearly 2,000 Wal-Mart discount stores in 1993 were expected to be $.12. Historical the United States, approximately 200 Sam's dividends per share and carnings per share Clubs membership-warehouse stores, and were as shown at the bottom of this page specialty distribution segment that serves Wal-Mart's balance sheet, of January 31 0,000 convenience stores and independ 1993, summarizes the company's financial ent grocers. Discount stores' sales ac- structure (Table 16-3). Most of the com counted for 73 percent of 1992 sales. Mem pany's debt was not actively traded. How bership club sales were the second-largest cver, the company disclosed in a note to area, accounting for 22 percent of 1992 the financial statements that long-term sales. The remaining 5 percen of W debt with a book value of $3.073 had a fair Mart's sales were accounted for by McLane market value of $3.357 billion. Assuming & Western convenience store and inde the average stated rate on outstanding se- pendent grocer supply division. Thus, Wal- curities was 7.5 percent, the yield to matu Mart was one of the companies that had re- rity would be 6.87 percent. It was assumed sisted the trend toward diversifying into er long-term debt would sell at a everything from aardvarks to zymometers. siilar yield to maturity if the debt were Concentration did not mean lack of publicly sold. growth, however. New capital expendi Wal-Mart was a heavy user of commer- tures in 1992 alone were $3.5 billion, plus cial paper with an average daily balance an associated investment in working capi outstanding for 1992 of $1.184 billion tal of $1.8 billi. If Wal-Mart was to make The weighted average before tax interest optimal capital investment decisions, it raeon this paper was 3.5 percent was clear that an accurate estimate of thMart has $1.818 billion in capital lease obligations on the balance sheet. In Wal-Mart presently had 2.3 the footnote there is a historical 8 to shares of common stock outstanding. The 14 percent imputed discount rate used in stock had a beta of 1.3 and was selling at calculating this obligation. Given the over- 30 a share in 1992. The yield to maturity decline in interest rates, the lower end on U.S. Treasury bonds was 6.5 percen, of the range, or 8 percent, is probably the and Treasury bills were seling to yield betr estimate of what future leases wil cost of capital was n eeded 1989 1990 9 1992 YEAR Dividends 0 .01 Earnings 06 09 .12 5 20 28 37 4857 70 .87 1982 1983 1984 985 198697 19B .01 02 02 . 03 04 06 07 09 This analysis, along with necessary estinates, was prepared by the author and does not represent the views of managers at Wal-MarL