EC

Excel Project

Due: Apr 26 (Wednesday), 2023 at 11:59pm EST

Materials to be submitted:

You are expected to submit TWO files:

1. An electronic copy of report on Blackboard.

The report should start with an introduction about the firm you pick, and follow the

steps described below to show your work towards estimating the WACC. Describe

your data source, data period for estimation and other necessary details.

2. An Excel file that contains the data you use, and demonstrate the steps to your

estimation.

A sample Excel file is provided with S&P500 market returns. You can work with the

sample Excel file and submit as your Excel file.

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Pick a non-financial S&P500 firm to work with. Make sure 1) its simulated tax rate is available in

marginal tax rate.xlsx AND 2) it has long-term debt outstanding on FINRA (see Step 3.a in the

instructions file). If any of the two requirements are not met, pick a different firm. Estimate the

company’s cost of capital (WACC). Do not forget to cite your data sources.

Suggested data source: YahooFinance, Bloomberg, Factset, FINRA.

Detailed instructions and a video walk through of the Coca-Cola example are provided. (Please

pick a different firm than Coca-Cola.)

Estimate the firm’s cost of capital:

1) Estimate the market value of common equity and debt. Explain how you get your estimates.

2) Estimate the cost of equity using CAPM model.

a. What is the firm’s equity beta? Use the most recent 5 years of monthly return data

to estimate the firm beta.

S&P500 returns (market returns) over the past five years are provided in the

sample Excel file in sheet “S&P500_ending Apr 2023”.

Be careful to match the time period between your firm returns and the S&P500

returns: your firm’s most recent monthly return should be 04/01/2023, this is

matched with the S&P500 returns in sheet “S&P500_ending Apr 2023”.

b. Assume market risk premium is 6%.

c. For risk-free rate, use the current 10-year US Treasury rates on the FINRA

website.

3) Estimate the cost of debt.

a. Go to FINRA, find the yield-to-maturity (YTM) of the firm’s long-term debt.

If you do not find any long-term debt with this firm, try to pick a different firm.

b. What is the pre-tax cost of debt for your company? What is the after-tax cost of

debt? Use the simulated marginal tax rate (MTR) to compute the after-tax cost of

debt.

If the MTR is missing for a firm, try to pick a different firm.

4) Estimate the cost of capital.