The purpose of this project is to expose the student to real stocks and the data of these stocks in the overall marketplace. As such, each student will be required to sign up with the professor to tell him which stock she/he will be evaluating during the semester. By evaluating specific stocks, the student gains more familiarity with actual stock data and the real-world consequences of financial decisions such as dividend policy and corporate use of debt. You will be utilizing the same stock that you analyzed for the first project. There is some overlap for your analysis.

Students should conduct the following analysis on the stock that they have selected.

Go to the balance sheet of the firm and look up the long term debt and the short term debt. This information can be widely found from the Yahoo finance web page along with many other sources.

Go to the income statement for the firm and obtain the interest expense (sometimes called total interest). Use the total long term debt and the interest expense to calculate the likely percent return on the debt of the firm. In addition, look up the taxes paid. You will use the interest expense to estimate the cost of debt capital and the taxes paid to get an estimate of the tax rate of the firm.

As in the prior project, you must use the CAPM to calculated the expected return from the equity (stock) of the firm.

Using the data from the balance sheet, calculate the equity weight for the firm and the debt weight. It is okay to assume that the firm has no preferred stock.

Using the expected stock (equity) return from 3 and debt return from 2, calculated the weighted cost of capital using the book value of debt.

Repeat the above calculations assuming that the book value of debt is the same as the market value of debt. Use the market capitalization of the firm as the market value of equity and repeat the calculations for weighted average cost of capital.

Firm Name:	NVIDIA (NVDA) Using 2021 data
Long term debt:	$6,598,000
Short term debt:	$1,120,000
Total debt:	$7,718,000
Interest expense:	$184,000
Expected rate of return on debt:	0.02788724 => 2.79%
Stock beta:	1.75
Expected return on equity:
Equity weight (book value):
Debt weight (book value):
Taxes paid:
Taxes / net income (estimate for tax rate):
Weighted average cost of capital:

Expected return on equity:
Equity weight (market value):
Debt weight (market value):
Weighted average cost of capital (market value):

After filling out the above table, answer the following question about weighted average cost of capital (WACC). Make sure you consider the tax-adjusted weighted average cost of capital.

Suppose you are a manager faced with various projects at the company you calculated the WACC for. How would you use this number to evaluation projects for the firm? What would be your decision criterion for accepting a project or rejecting it?

For this project, you calculated the rate of return for the debt rather than the EXPECTED rate of return for the debt. What would using the EXPECTED rate of return on debt do to your WACC calculations?

Suppose you ignore taxes for the firm (you calculate WACC without considering taxes). What will be the impact on the WACC? (will it increase, decrease, or stay the same)

Explain why you might use market value weighted average cost of capital as opposed to book value.