What is the WACC for Harley Davidson?

In this project, you will find and discern the appropriate data to determine a realistic assessment of the weighted average cost of capital for a firm of your choosing.

You will need to search for data from several sources, use subjective judgment to determine which data to use or discard, use subjective judgment to determine which calculation gives a more acceptable estimate and make some simplifying assumptions.

I.Title page

II.Table of Contents

III.Introduction/Background (2-3 pages)

This section should include background on the company that has been chosen.

IV.Pages showing equations with data and brief description

There is no page length given for this as it can vary greatly. This section is to be divided up based on the topics. In each section, you must show and explain the equations that are used. In addition, you are to draw any conclusions on the company you can from this data. Please note that detailed worksheets showing all of the calculations for this section are to be included in an appendix.

Cost of Equity (Common Stock)

oBeta from Regression and two Betas from analysts

oBeta Chosen for CAPM and why

oCapital Assets Pricing Model (include how determined R_F and[ R_M or (R_M - R_F)]

oDiscounted Cash Flow (DCF) (only if dividends - include how determined)

oOwn-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine risk premium)

Cost of Preferred Stock

Cost of Debt (make sure to include table that lists all bond issues with weighted average cost of debt)

Market Value of Debt (will have calculated above, but will need to add any long term leases from balance sheet to get total market value of debt)

Market Value of Equity

Market Value of Preferred Stock

Value of Firm

Firm's Tax Rate (explain how determined)

Weight for Equity

Weight for Preferred Stock

Weight for Debt

WACC (Weighted Average Cost of Capital)

V.Assumptions

Including but not limited to R_F , R_M, RP_M (which =Rm - R_F),growth rate of dividends. This page should have a brief description of how you came up with the estimates with spreadsheets, etc. to be put in the appendix.

VI.Appendix

Appendix should include all relevant data including debt data from Morningstar, calculations of weighted average cost of debt, stock returns, betas from analysts, beta regression analysis, method/sourcing for R_F and R_M, growth rates for dividends, different methods to determine tax rates, etc. Detailed descriptions, tables of data and excel sheets etc will be in the appendix.

VII.References

HELPFUL EQUATIONS

WACC = [(w_E) x R_E] + [(w_PF) x R_PF] +[(w_D) x R_D x (1- T_C)]

Where:

Weights

(w_E) = % of common equity in capital structure

(w_PF) = % of preferred stock in capital structure

(w_D) = % of debt in capital structure

Componentcosts

R_E= firm's cost of equity

R_PF= firm's cost of preferred stock

R_D = firm's cost of debt

T_C = firm's corporate tax rate

HELPFUL INFORMATION