X 130B CASE STUDYFall Quarter 2022Plugged-In and Best BuyThe following description is loosely based on a real company, but names and locations have been changed:You are working as a consultant for Plugged-In Corporation ("PI"), a growing electronics and appliance retailer. PI was founded 17 years ago by Tom and Amanda Cooper and their family. The Coopers started in the retail electronics business over 25 years ago, originally working for other companies. PI now owns a chain of 30 stores, primarily in the Central Atlantic and Southeast regions of the United States, and sells merchandise online as well. PI has kept up with trends in home electronics by hiring and training a young, motivated workforce. In addition, the Coopers have cultivated relationships with a number of home builders and designers who use PI as their supplier for home appliances. In 2021, PI had total sales of approximately 1.4 billion.The company is considering going public, and also is looking at various new projects to generate additional revenue. If they go public, the owners are wondering what their overall cost of capital is likely to be. The Coopers want to look at a publicly traded company as a benchmark and they have selected Best Buy as the one that most closely resembles PI. At the same time, PI is considering several new capital investments. One of these is the "solar warehouse" project: PI now has 20 warehouses with roof space to accommodate photovoltaic solar panels. Installing solar would produce significant amounts of electric power that could be used by PI or sold to regional utilities. Your consulting assignment has two parts: first, to investigate the weighted average cost of capital for Best Buy as a benchmark, and second to use that information to evaluate the solar project.QUESTIONS (Show your calculations):1. Most publicly traded corporations are required to submit quarterly (10-Q) and annual (10-K) reports to the SEC detailing the financial operations of the company over the past quarter or year, respectively. These corporate filings are available on the SEC website at:https://www.sec.gov/edgar/searchedgar/companysearch.htmlLook for SEC filings for BBY. Find and use the most recent 10-Q or 10-K. What is the book value of long-term debt and the book value of equity as listed on the balance sheet? 2. Look at equity for BBY. Go to finance.yahoo.com and enter the ticker symbol. What is the most recent stock price listed for BBY? What is the market value of equity, also called market capitalization? How many shares of stock does BBY have outstanding? What is the most recent quarterly dividend, if any (see "Historical Data")? What is the annual dividend? What is the beta value for BBY?3. Calculate the required return on BBY using the dividend growth model. Assume that analysts are projecting a current year growth rate = 5.5% for BBY. Given this growth rate, what is your estimate of the required return on BBY common stock with the dividend growth model? What do you observe about the relative contribution to the total return from the dividend yield as compared to the capital gains yield? 4. Now find the current yield on 3-month T-bills. You can use this as an estimate of the risk-free rate. A table of rates can be found by going to the US Treasury website at:https://home.treasury.gov Under the "data" tab, select "Daily Treasury Bill Rates". Find the 13-week T-bill and use the "coupon equivalent" rate (be careful of where the decimal goes - the coupon equivalent rates are percents). Assuming the historical market risk premium is 7.0%, what is the cost of equity for BBY using the CAPM?5. The next step is to calculate the cost of debt for BBY. Go to:https://finra-markets.morningstar.com/Look at the "Bonds" section and click on the "Search" tab. Find the yield to maturity for each of BBY's outstanding bond issues (there are only two current bonds - ignore expired issues). What is the weighted average cost of debt for BBY using book value weights and then using market value weights? (Book values can be found in the 10-K or 10-Q. Market values depend on the price (percent of par) on Morningstar multiplied by the book value - but be careful about where the decimal place goes.) Ignore other components of long-term debt in the 10-K or 10-Q (such as interest rate swap adjustments, discounts and leases). How much difference does it make for cost of debt if you use book value weights compared to market value weights? You can use a table like the one below to formulate your answer:6. Calculate the weighted average cost of capital for BBY using market value weights (in other words, use the market value of equity and the market value of debt when calculating the "w" terms in the WACC equation). For cost of equity, use the average of your dividend growth and CAPM results. For cost of debt, use the market value rate from Question 5. Assume that BBY has a 25 percent overall tax rate.7. The Coopers have asked you to look at their solar project assuming PI's WACC is similar to that of BBY. The Excel file "PI_warehouse_solar.xlsx" provides a summary of the forecast for the project. (The Excel file is available on Canvas under the Case Study module.) The estimates for the project assume that an available two million square feet of roof space could generate approximately 20 megawatts (MW) of electricity. The project requires an upfront investment of $30 million and $1 million per year in maintenance and upgrade costs, increased by 3% annually for inflation. One option for PI is to sell the power to regional utilities at an average starting price of $90 per megawatt-hour (MWh) under a Power Purchase Agreement (PPA). The PPA includes an annual 4% price increase. These assumptions are included in the Excel file in order to generate the figures on the "Net Revenue" line. The Coopers would like you to analyze the solar project assuming the power is sold to utilities under the PPA. You have been asked to provide the following for the project:a. NPV (using the BBY WACC as the discount rate)b. IRRc. Profitability Indexd. Payback PeriodModify the Excel file to show your calculations and attach it to your report. You may also want to check the results using a financial calculator.8. The Coopers have told you that they like the payback method because it seems more straightforward and they generally want a payback period of 5 years or less for projects. However, they are open to considering the other metrics if you can explain them. Based on your results from Question 7., what would you tell the Coopers? What is your overall recommendation?9. Suppose that PI has hired a solar consultant who says that current conditions have changed. According to the consultant, the inflation rate (growth rate) for maintenance and upgrades should actually be 5% and the PPA price growth rate should be only 2%. In addition, 15-year PPAs are less common now and most utilities will only sign up for a 10-year PPA so the project forecast should end at project period 10. a. How would this change your calculations of NPV, IRR, Profitability Index and Payback Period?b. Would this change your recommendations to the Coopers and if so, in what way?

5. The next step is to calculate the cost of debt for BBY. Go to: https://finra-markets.morningstar.com/ Look at the \"Bonds\" section and click on the "Search\" tab. Find the yield to maturity for each of BBY's outstanding bond issues (there are only two current bonds ignore expired issues). What is the weighted average cost of debt for BBY using book value weights and then using market value weights? (Book values can be found in the 10-K or 10-Q. Market values depend on the price (percent of par) on Morningstar multiplied by the book value but be careful about where the decimal place goes.) Ignore other components of long-term debt in the 10-K or 10-0. (such as interest rate swap adjustments, discounts and leases). How much difference does it make for cost of debt if you use book value weights compared to market value weights? You can use a table like the one below to formulate your answer: "WI- Book Percent Market Percent Yield to Cost of Value of Total Value of Total Maturity Debt - (millions) (millions) Book Value weights