project

Welcome to Week 5: The WACC Model (Microsoft)

This week, we will review how to determine the weighted average cost of capital, commonly known as the WACC. We will also work through a WACC problem to practice applying the WACC model. You will then put the pieces together and find the WACC for an actual company of your choice.

Course Project Report 1

Review the Project Rubric in Week 2. Please note that this Summary below is slightly different from the Rubric. I am asking you to include a separate section on your conclusions. I have also added a minimum word count and a requirement for your references. Make sure that you label your work as I have indicated. There is a lot of information, so it is important that is presented ordered and labeled.

Organize your work as follows.

Title Page

Table of Contents

Introduction and background information

Data

In each section, you must show and explain the equations that are used. In addition, you are to draw any conclusions on the company you can from this data and include this in your Conclusion.

Cost of Equity (Common Stock)

Beta from Regression and two Betas from analysts

Beta Chosen for CAPM and why

Capital Assets Pricing Model (include how determined RF and[ RM or (RM – RF)]

Discounted Cash Flow (DCF) (only if dividends – include how determined)

Own-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine risk premium)

Cost of Preferred Stock

Cost of Debt (make sure to include table that lists all bond issues with weighted average cost of debt)

Market Value of Debt (will have calculated above, but will need to add any long-term leases from balance sheet to get total market value of debt)

Market Value of Equity

Market Value of Preferred Stock

Value of Firm

Firm’s Tax Rate (explain how determined)

Weight for Equity

Weight for Preferred Stock

Weight for Debt

WACC (Weighted Average Cost of Capital)

Assumptions

Including but not limited to RF , RM, RPM (which =Rm - RF), growth rate of dividends. This page should have a brief description of how you came up with the estimates with spreadsheets, etc. to be put in the appendix.

Conclusion: Provide a clear summary and conclusion of lessons learned from this report.

References: Provide at least 4 references and include 2 academic references (from academic journals and not just web sites) in APA style

Appendix

Please note that detailed worksheets showing all of the calculations for this section are to be included in an appendix.

Your work should be a minimum of 1200 words, not counting titles, references and long quotations. A high Turnitin score will not be accepted. It should be under 25%. If it is higher than 25% large deductions will be applied and you may be reported for Academic dishonesty. For the complete Florida Tech policy on academic dishonesty, cheating and plagiarism see the Florida Tech Student Handbook: http://www.fit.edu/studenthandbook/