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WACC+Worksheet+project-1

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file:////home/vdimitrov/10658/84fa37a30d61fbd34c33b987a71f80271dd836b1.xls MGT 3062 FINANCIAL MANAGEMENT WACC PROJECT Selected Securites Data Debt Market Value Par Value Bond 1 $1,020.00 $1,000 9.8% 4 10.00 25,000 Bond 2 $889.00 $1,000 7.0% 2 8.00 34,500 Bond 3 $1,250.00 $1,000 15.0% 1 6.00 26,400 Total Common Stock Market Value Par Value growth rate beta Class A Shares $17.35 $1.00 0.75 5.0% 1.6 2,735,000 Class B Shares $14.50 $1.00 - 5.1% 1.5 1,845,000 Total Preferred Stock Market Value Par Value Dividend Shares $108.00 $100 $7.50 150,000 Tax Rate 34% Risk Free Rate 3.3% Market Premium 8.0% Total Market Value WACC (market) Risk Adjustment 5.00% RACC given values are highlighted Coupon Rate Coupons per year Years to Maturity Bonds Outstanding Last Dividend Shares Outstanding Shares Outstanding You are the CFO of the firm. One of your responsibilities is to assign the discount rate that your financial analysts are to use in their discounted cash flow analysis.
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Unformatted text preview: The following publicly available securities data is today’s “snapshot” of the market. Use this information to estimate a weighted average cost of capital (WACC) for your firm. Then add a "spread" or "risk adjustment" to the WACC to get the company's risk adjusted cost of capital (RACC). The RACC is the discount rate that you will disseminate to your analysts. This is the hurdle rate for projects of normal risk to the company. Since prices are volatile, calculate a range of RACCs. Then use your professional judgment to assign a RACC to your analysts. Bond prices may move up or down 5%, stock prices 15%, preferred stock prices 3%, betas 20%, growth rates +/- 1%, market premium +/- 1%. Write a one page memo to your analysts in which you justify your RACC. Attach your spreadsheet and formulas (press ctrl ~) to the memo....
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