You work in Walt Disney Company's corporate finance and treasury department and have just been assigned to the team estimating Disney's 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 "Investing Tab" and then "Market Overview," 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 next to the "Get Quotes" button, type Walt Disney's ticker symbol (DIS) and press enter. Once you see the basic information for Disney, find and click "Key Statistics" on the left side of the screen. From the key statistics, collect Disney's market capitalization (its market value of equity), enterprise value (market-value equity ++ net debt), cash, and beta.
3. To get Disney's cost of debt and the market value of its long-term debt, you will need the price and yield to maturity on the firm's existing long-term bonds. Go to finra-markets.morningstar.com. Under "Market Data," select "Bonds." Under "Search," click "Corporate," and type Disney's ticker symbol. A list of Disney's outstanding bond issues will appear. Assume that Disney's 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 Disney's 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 $60million=$60,000,000),$60million=$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 bond's 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 (Price100).(Price100). Do so for each issue and then calculate the total of all the bond issues. This is the market value of Disney's debt.
6. Compute the weights for Disney's equity and debt based on the market value of equity and Disney's market value of debt, computed in Step 5.
7. Calculate Disney's 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 35%, calculate its after-tax debt cost of capital.
9. Calculate Disney's WACC.
10. Calculate Disney's 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 Disney's WACC using the weights based on the net debt. How much does it change?
11. How confident are you of your estimate? Which implicit assumptions did you make during your data collection efforts?

In warning, this case and the chapter take you through a roundabout way to identify the components needed to compute WACC (weighted average cost of capital). To assist you, here are some tips listed to align with the instructions in the case:

1. You can find the yield on a 10-year treasury bond on the site shown in the instructions or on www.treasury.gov.

2. Market capitalization (or "market cap") is just the number of shares outstanding times the market price. You should not have to calculate this. You can get it from where the text says to find it, or you can just look at the top of the page when you open DIS in Yahoo (there is a line that says "market cap")

3-5. You can also find the market value of Disney's bonds at markets.businessinsider.com/bonds > Bond Finder (scroll down) > enter "disney" and Search > returns list of 7 Disney bonds outstanding. You can select the columns: Issuer, Currency, Coupon, Yield, Moody's Rating & Maturity Date and paste to Excel. Next to Maturity Date, add the following columns: Closing Price; Issue; and MV of bond.

For each bond, you will need to click on its link on the website and record the closing price (top price shown) and the issuance. Do not drop zeros - write out as given.

For each bond, you will then compute its MV: Price x Issue. Total MV of the bonds is the sum of the seven individual MVs. When you start comparing against other values, you will need to show total MV of bonds in millions. (Eg, total MV bond = $123,123,000,000 - work with it as $123,123 for step 5 forward.)

6. You are citing "market values" instead of "book values" for both debt and equity, so you will not find the values you need on a balance sheet. The market value of equity is the "market cap", and the market value of debt is found in steps 3-5.

7. You are using the Capital Asset Pricing Model (CAPM) to calculate the cost of equity.

This is simply: (risk-free rate) + beta(market premium)

For example, if the risk-free rate is 2%, the beta is .8, and the market premium is 5%, then the cost of equity is 2%+.8(5%) = 6%

8. Self-explanatory

9. Let's assume that Disney's after-tax cost of debt is 4%, its market value of debt is $30M, the cost of equity is 6% and the market cap. is $90M (these numbers are just used for illustrative purposes. The real capitalization numbers are much higher.) Using these inputs, the total capitalization is $120M, of which debt comprises 25% and equity comprises 75%. The calculation to figure WACC is: .25(4%) + .75(6%) = 5.5%.

10 and 11. I'll ask you to wrestle with these on your own initially.