The WACC Project Instructions

Company that was chosen is APPLE

The assignment is to estimate the weighted average cost of capital (WACC) for an actual corporation as of the current time. Actual managers would need to know their companys WACC as a starting point to estimate the discount rate to use in the net present value analysis of new projects (or of termination decisions). You may need to know the technique for application in some case study solutions.

The project also develops student skills in using elementary financial management models, in dealing with situations where there are too much or too little data, in employing publicly available data sources with little guidance, and in applying sound judgment when encountering naturally occurring measurement errors.

Picking Your Corporation: APPLE Company

1. Each person should pick a different corporation. This is not a group project.
2. The corporation must be a publicly traded company. Many well-known companies are not publicly traded. For example, Publix, Albertsons, Deloitte are private companies and cannot be used for this project.
3. Avoid public utilities (FPL, telephone companies, etc.) Because of regulation, their WACCs have a different meaning.
4. Avoid financial companies (banks, insurance companies, brokers, etc.). Because of regulation, their capital structures are difficult to discern.
5. Your corporation must have common equity and long-term debt (debt with maturity dates of more than 1 year).

The Primary Equations

The theory of why managers should use the WACC in net present value analysis comes later in the course. For now, start with the equations for WACC, per se:

2. Borrowing

(Total debt current liabilities) from the most recent balance sheet. Go to Yahoo Finance Financials Balance Sheet to find this.

3. Find the Total Corporate Value V = E + B [2]

Apply equation [1]:

k_a = k_e(E/V) + k_d(1 t)(B/V) [1]

Recall, t = .21 now.

APPENDIX