World-Mart Inc. is a global retail company. The data in the attached spreadsheet includes the actual amounts for fiscal 2018 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for World-Mart (in millions). The market equity beta () for World-Mart at the end of 2018 is 0.90. Assume that the risk-free interest rate () is 2.25% and the market risk premium is 5.0%. World-Mart had 3,251 million shares outstanding at the end of 2018, when the share price was $112.45. The long-run (assumed) growth rate in Year +6 and beyond is 2.0%.

(1) Calculating Risk-Adjusted Required Rates of Return: Required a. Use the CAPM to compute the required rate of return on common equity capital for World-Mart. b. Compute the weighted average cost of capital for World-Mart as of the start of Year +1. At the end of 2018, World-Mart: i. Had $50,034 million in outstanding interest-bearing debt on the balance sheet. ii. Assume that the balance sheet value of World-Mart's debt is approximately equal to the market value of the debt. iii. Average interest expense of 5.0% on debt capital iv. Average tax rate will be 21.0%. V. No preferred stock. vi. Non-controlling equity capital of $3,065 million vii. Required rate of return of 12.59% on non-controlling equity capital viii. Assume noncontrolling interests receive dividends equal to the required rate of return each year. A B D 12 Months Ended Jan. 31, 2020 Jan. 31, 2021 Jan. 31, 2019 $ 555,233 3,918 559,151 $ 519,926 4,038 523,964 $ 510,329 4,076 514,405 420,315 116,288 22,548 394,605 108,791 20,568 385,301 107,147 21,957 1 Consolidated Statements of Income - USD ($) shares in Millions, $ in Millions 2 3 Revenues: 4 Net sales 5 Membership and other income 6 Total revenues 7 Costs and expenses: 8 Cost of sales 9 Operating, selling, general and administrative expenses 10 Operating income 11 Interest: 12 Debt 13 Finance, capital lease and financing obligations 14 Interest income 15 Interest, net 16 Other (gains) and losses 17 Income before income taxes 18 Provision for income taxes 19 Consolidated net income 20 Consolidated net income attributable to noncontrolling interest 21 Consolidated net income attributable to Walmart 22 Net income per common share: 23 Basic net income per common share attributable to Walmart (in USD per share) 24 Diluted net income per common share attributable to Walmart (in USD per share) 25 Weighted average common shares outstanding: 26 Basic (in shares) 27 Diluted (in shares) 28 Dividends declared per common share (in USD per share) 1,976 339 (121) 2,194 (210) 20,564 6,858 13,706 (196) $ 13,510 2,262 337 (189) 2,410 (1,958) 20,116 4,915 15,201 (320) $ 14,881 1,975 371 (217) 2,129 8,368 11,460 4,281 7,179 (509) $6,6 $ 4.77 $ 4.75 $ 5.22 $5.19 $ 2.28 $ 2.26 2,831 2,847 $ 2.16 2,850 2,868 $ 2.12 2,929 2,945 $ 2.08 B 10 4,005 28,983 23,598 252,496 4,417 31,073 16,567 236,495 575 A Finance lease right-of-use assets, net 11 Goodwill 12 Other long-term assets 13 Total assets 14 Current liabilities: 15 Short-term borrowings 16 Accounts payable 17 Accrued liabilities 18 Accrued income taxes 19 Long-term debt due within one year 20 Operating lease obligations due within one year 21 Finance lease obligations due within one year 22 Total current liabilities 23 Long-term debt 24 Long-term operating lease obligations 25 Long-term finance lease obligations 26 Deferred income taxes and other 27 Commitments and contingencies 28 Equity: 29 Common stock 30 Capital in excess of par value 31 Retained earnings 32 Accumulated other comprehensive loss 33 Total Walmart shareholders' equity 34 Noncontrolling interest 35 Total equity 36 Total liabilities and equity 224 49,141 37,966 242 3,115 1,466 491 92,645 41,194 12,909 3,847 14,370 46,973 22,296 280 5,362 1,793 511 77,790 43,714 16,171 4,307 12,961 282 3,646 88,763 (11,766) 80,925 6,606 87,531 $ 252,496 284 3,247 83,943 (12,805) 74,669 6,883 81,552 $ 236,495 B D 7 (1,886) 8 15 (8,589) 8,401 0 1,911 1,521 (1,036) 320 1,981 3,516 4,850 0 (499) 1,734 (1,086) (2,395) 6,966 4,623 (136) 36,074 154 (300) (274) 186 (93) 25,255 (368) (1,311) 1,831 183 (40) 27,753 Net unrealized and realized (gains) and losses Losses on disposal of business operations 9 Asda pension contribution 10 Deferred income taxes 11 Other operating activities 12 Changes in certain assets and liabilities, net of effects of acquisitions and dispositions: 13 Receivables, net 14 Inventories 15 Accounts payable 16 Accrued liabilities 17 Accrued income taxes 18 Net cash provided by operating activities 19 Cash flows from investing activities: 20 Payments for property and equipment 21 Proceeds from the disposal of property and equipment 22 Proceeds from the disposal of certain operations 23 Payments for business acquisitions, net of cash acquired 24 Other investing activities 25 Net cash used in investing activities 26 Cash flows from financing activities: 27 Net change in short-term borrowings 28 Proceeds from issuance of long-term debt 29 Repayments of long-term debt 30 Dividends paid 31 Purchase of Company stock 32 Dividends paid to noncontrolling interest 33 Other financing activities 34 Net cash used in financing activities 35 Effect of exchange rates on cash, cash equivalents and restricted cash 36 Net increase in cash, cash equivalents and restricted cash 37 Cash and cash equivalents reclassified as assets held for sale 38 Cash, cash equivalents and restricted cash at beginning of year 39 Cash, cash equivalents and restricted cash at end of year 40 Supplemental disclosure of cash flow information: 41 Income taxes paid 42 Interest paid (10,264) 215 56 (180) 102 (10,071) (10,705) 321 833 (56) 479 (9,128) (10,344) 519 876 (14,656) (431) (24,036) (324) 0 (5,382) (6,116) (2,625) (434) (1,236) (16,117) 235 10,121 (1,848) 9,515 17,788 (4,656) 5,492 (1,907) (6,048) (5,717) (555) (908) (14,299) (69) 1,759 0 7,756 9,515 (53) 15,872 (3,784) (6,102) (7,410) (431) (629) (2,537) (438) 742 0 7,014 7,756 5,271 $ 2,216 3,616 $ 2,464 3,982 $ 2,348 12