FIN515
second project. Please let me know, I need this by Monday 2-11-2015. the
assignment is below:
FIN515
Second Project
The
purpose of this project is for you to have some practice working with financial
concepts in the real world. This will involve integrating some material
from throughout the course. The project will also involve the development
of your own approach to doing the work. The project does not provide a
step-by-step procedure for you to follow.
Your task
is to determine the WACC for a given firm using what you know about WACC as
well as data you can find through research. Your deliverable is to be a brief
report in which you state your determination of WACC, describe and justify how
you determined the number, and provide relevant information as to the sources
of your data.
With the
help of your professor, you have selected a company for which to research and
find the WACC. Your research is to be independent from any information you may
find at thatswacc.com or similar sites although you might want to use such
sites to provide a reasonableness check on the WACC you calculate.
Assumptions
As you
recall, the formula for WACC is
rWACC =
(E/E+D) rE + D/(E+D) rD (1-TC)
The
formula for the required return on a given equity investment is
ri= rf + ?i
* (RMkt-rf)
RMkt-rf is
the Market Risk Premium. For this project, you may assume the Market Risk
Premium is 4% unless you can develop a better number.
rfis the
risk free rate. The YTM on 10 year US Treasury securities is a good
approximation.
You may assume
a corporate tax rate of 40%.
One good
source for financial data for companies as well as data about their equity ishttp://finance.yahoo.com. By looking
around this site, you should be able to find the market capitalization (E) as
well as the ? for any publicly traded company.
There are
not many places left where data about corporate bonds is still available. One
of them ishttp://finra-markets.morningstar.com/BondCenter. To find data for a particular
company’s bonds, find the Quick Search feature, then be sure to specify
corporate bonds and type in the name of the issuing company. This should give
you a list of all of the company’s outstanding bond issues. Clicking on the
symbol for a given bond issue will lead you to the current amount outstanding
and the yield to maturity. You are interested in both. The total of all bonds
outstanding is D in the above formula.
If you
like, you can use the YTM on a bond issue that is not callable as the pre-tax
cost of debt for the company.
Deliverable
Write a
two or three page report that contains the following elements:
1.
Your calculated WACC.
2.
How data was used to calculate WACC. This would be the formula
and the formula with your values substituted.
3.
Sources for your data.
4.
A discussion of how much confidence you have in your answer. What
were the limiting assumptions that you made, if any.
