capital budgeting report

capital budgeting report - Professional Challenge Computing...

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Professional Challenge Computing WACC Computing the WACC for UTC (symbol UTX) was a challenge. It required a lot of looking at the balance sheet and making some educated guesses. The formula provided for WACC by Brigham and Ehrhardt (2008) is: WACC = w d r d (1-T) + w ps r ps + w ce r s UTC does not issue preferred stock. Thus, the w ps r ps = 0. UTC does issue common stock and as of the annual report of 2008 it has 15,917 million in common stock. Using the CAPM formula to determine the r s of the common stock we have a formula of: r s = r RF + (RP m )b i r RF = The risk free rate. For most companies, this value is similar to long term Treasury bonds. (Brigham and Ehrhardt, 2008, p. 347). For our purposes, we will use the 30 year treasury bond which has a return of 4.25% according to Bloomberg. (n.d.) RP m = The market risk premium. This measurement is the expected market return minus the risk free rate. (Ibid., p. 348). Brigham and Ehrhardt summarize this for us by letting us know to use a value of 5%. b i = The beta of the stock. According to Google finance, the beta for UTC is .96. (n.d.). That being said, our r s = 9.05 The complicated process was figuring out the debt of UTC. In 2008, UTC had 9,337 million in long term debt and 2,139 million in short term debt for a total of 11,476
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This note was uploaded on 10/18/2010 for the course BUSINESS 3087N taught by Professor Rivera during the Spring '10 term at Dowling.

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capital budgeting report - Professional Challenge Computing...

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