You work in Walt Disney Companys corporate finance and treasury department and have just been assigned to the team estimating Disneys WACC. You must estimate this WACC in preparation for a team meeting later today. You quickly realize that the information you need is readily available online.

1. Go to finance.yahoo.com. Under the Markets and then US Treasury Bond Rates, you will find the yield to maturity for ten-year Treasury bonds listed as 10 Yr Bond. Collect this number as your risk-free rate.

2. In the box at the top of the screen, type Walt Disneys ticker symbol (DIS) and press enter. Once you see the basic information for Disney, find and click Statistics under the quote. From the key statistics, collect Disneys market capitalization (its market value of equity), enterprise value (market-value equity + net debt), cash, and beta.

3. To get Disneys cost of debt and the market value of its long-term debt, you will need the price and yield to maturity on the firms existing long-term bonds. Go to finra-markets.morningstar.com. Under Market Data, select Bonds. Under Search, click Corporate, and type Disneys ticker symbol. A list of Disneys outstanding bond issues will appear. Assume that Disneys policy is to use the expected return on noncallable ten-year obligations as its cost of debt. Find the noncallable bond issue that is at least 10 years from maturity. (Hint : You will see a column titled Callable; make sure the issue you choose has No in this column. Bonds may appear on multiple pages.) Find the credit rating and yield to maturity for your chosen bond issue (it is in the column titled Yield). Hold the mouse over the table of Disneys bonds and right-click. Select Export to Microsoft Excel. (Note that this option is available in IE, but may not be in other browsers.) An Excel spreadsheet with all of the data in the table will appear.

4. You now have the price for each bond issue, but you need to know the size of the issue. Returning to the Web page, click Walt Disney Company in the first row. This brings up a Web page with all of the information about the bond issue. Scroll down until you find Amount Outstanding on the right side. Noting that this amount is quoted in thousands of dollars (e.g., $60,000 means $60 million = $60,000,000), record the issue amount in the appropriate row of your spreadsheet. Repeat this step for all of the bond issues.

5. The price for each bond issue in your spreadsheet is reported as a percentage of the bonds par value. For example, 104.50 means that the bond issue is trading at 104.5% of its par value. You can calculate the market value of each bond issue by multiplying the amount outstanding by (Price , 100). Do so for each issue and then calculate the total of all the bond issues. This is the market value of Disneys debt.

6. Compute the weights for Disneys equity and debt based on the market value of equity and Disneys market value of debt, computed in Step 5.

7. Calculate Disneys cost of equity capital using the CAPM, the risk-free rate you collected in Step 1, and a market risk premium of 5%.

8. Assuming that Disney has a tax rate of 20%, calculate its after-tax debt cost of capital.

9. Calculate Disneys WACC.

10. Calculate Disneys net debt by subtracting its cash (collected in Step 2) from its debt. Recalculate the weights for the WACC using the market value of equity, net debt, and enterprise value. Recalculate Disneys WACC using the weights based on the net debt. How much does it change?