Reference no: EM132519420

Question 1: Calculate the Weighted Average Cost of Capital (WACC) for McCormick and Company using the formula WACC = (WD x RD x (1-T)) + (WS x Rs)

Note that --

Rs = the cost of equity

Rd = the cost of debt

T = the tax rate

WD = Value of debt / (Value of debt plus value of equity)

WS = Value of equity / (Value of debt plus value of equity) **Note that the weight of debt plus the weight of equity must total to 100%, as there are only two components in the capital structure.**

• In order to estimate the weights of debt and equity in the total capital structure, the CFO suggests using the book value of debt and the market value of equity. To determine the book value of debt, use data from the year end November 2019 McCormick 10-K. Look on the Balance sheet and add the following -- Short term borrowings, Current portion of long term debt, and Long term debt. To determine the market value of equity, use the following data: On March 17, 2020 the market value of equity (or "Market Cap") for McCormick (MKC ) - as found on Yahoo finance - was $18.42 billion. Use 4% for the cost of debt. Use 27.5% as the tax rate - an estimate of the combination of federal and state income tax rates. Make your own best estimate of the cost of equity based on your work