Project Part II & III - Dividend-discount model for current share price vs. market price

Part Two: Determine the WACC for the Firm:

1. Calculate your ‘best’ estimate of the Weighted Average Cost of Capital (WACC) for the firm. In order to complete this task, you will need to do the following:

    

1. Determine the cost of debt: Please explain the approach and procedure you use to make this determination.

1. Determine the cost of equity: Please explain the approach and methodology you use in making this determination.

1. Determine the capital structure of the firm: Determine the market value of the firm’s debt and equity.

1. Explain your result and discuss how the firm will use the WACC.

Part Three:          

Determine the Value of Your Firm’s Equity:

1. We will use the Dividend-Discount Model to determine the firm’s equity – i.e., it will give us the current price of a share of stock. We will use this model to estimate the value of a share of your firm’s stock and compare this estimate to the current market value of this firm’s stock.

2. Estimate the firm’s stock price using the Dividend-Discount Model:

1. Use an investment source – e.g. www.yahoofinance.com , www.morningstar.com to find the following information:

1. Current dividend

ii.   Analysts estimated growth rate for the next 5-10 years

1. Use your estimate of the cost of equity in the WACC for the r_E part of your formula

2. Combine the above information into the Dividend-Discount Model

1. Compare your result to the current market price of your firm’s stock. Describe, discuss, and analyze how they compare. Based on your knowledge of finance, how would you explain any differences you observe?

Notes:

• Whole Foods Market (WFM) is the firm to be used

  I’ve added back in the WACC provided from previous question last week that you helped me with (see PART II below for cost of equity)