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WACC ProjectIn this project, you will find and discern the appropriate data to determine a realisticassessment 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 todetermine which data to use or discard, use subjective judgment to determine whichcalculation gives a more acceptable estimate and make some simplifying assumptions.The purpose of the projects is to show some of the sources of measurement errors infinancial analysis, to introduce the diverse sources of publicly available financialinformation and to develop skill in analysis in situations where there are too much or toolittle data.Keep the following in mind when choosing a company:Publicly tradedNo utilitiesNo financial firmsNo all equity firmsNo firms with large amounts of convertible securities or warrantsOrganization of the paper should be as follows:I.Title pageII.Table of ContentsIII.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 descriptionThere is no page length given for this as it can vary greatly. This section is to bedivided up based on the topics. In each section, you must show and explain theequations that are used. In addition, you are to draw any conclusions on thecompany you can from this data. Please note that detailed worksheets showing allof the calculations for this section are to be included in an appendix.Cost of Equity (Common Stock)oBetafrom Regression and two Betas from analystsoBeta Chosen for CAPM and whyoCapital Assets Pricing Model (include how determined RFand[ RMor (RM– RF)]oDiscounted Cash Flow (DCF) (only if dividends – include how determined)
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oOwn-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine riskpremium)Cost of Preferred StockCost of Debt (make sure to include table that lists all bond issues withweighted average cost of debt)Market Value of Debt (will have calculated above, but will need to add anylongterm leases from balance sheet to get total market value of debt)Market Value of EquityMarket Value of Preferred StockValue of FirmFirm’s Tax Rate (explain how determined)Weight for EquityWeight for Preferred StockWeight for DebtWACC (Weighted Average Cost of Capital)V.AssumptionsIncluding but not limited to RF, RM,RPM(which =Rm – RF),growth rate ofdividends. This page should have a brief description of how you came up with theestimates with spreadsheets, etc. to be put in the appendix.VI.AppendixAppendix 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 RFand RM,growth rates fordividends, different methods to determine tax rates, etc. Detailed descriptions,tables of data and excel sheets etc will be in the appendix.VII.ReferencesHELPFUL EQUATIONSWACC = [(wE) x RE] + [(wPF) x RPF] +[(wD) x RDx (1- TC)]Where:Weights(wE) = % of common equity in capital structure(wPF) = % of preferred stock in capital structure(wD) = % of debt in capital structureComponentcostsRE= firm’s cost of equityRPF= firm’s cost of preferred stockRD= firm’s cost of debt



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