Reference no: EM13976487
Detailed Question: You need to choose four stocks including a specific stock (let's say it is A) assigned to you.
1) Please visit finra.org first. Then, check if the stock A has outstanding bonds. As you recall, I realized LECO (assigned to me) does not have any bonds outstanding!
If your stock does not have, then email me so I can give you another company.
2) Choose another stock. Let's say it as B. So, now, you have A & B to construct your two-stock portfolio
3) Choose two more stocks, C and D to construct your four-stock portfolio which consists of stock A, B, C, and D.
4) Make sure you have to keep the order of A,B,C, and D when you construct the portfolios on the excel template.
5) It is assumed that it is January 1, 2016. Then, you are to find recent five-year monthly prices from yahoo/finance.
You work in your Company (assigned to you)'s corporate finance and treasury department and have just been assigned to the team estimating your Company's WACC. You must estimate this WACC in preparation for a team meeting later today. You quickly realize that the information you need is readily available online.
1. Go to https://finance.yahoo.com. Under the "Market Data," you will find the yield to maturity for ten-year Treasury bonds listed as "10 Yr Bond (%)." Collect this number as your risk-free rate.
2. In the box next to the "Get Quotes" button, type your company's ticker and click Search. Once you see the basic information for your company, find and click "Key Statistics" on the left of the screen. From the key statistics, collect your company's market capitalization (its market value of equity), enterprise value (market value equity +net debt), cash, and beta.
3. To get the cost of debt and the market value of its long-term debt, you will need the price and yield to maturity on the firm's existing long-term bonds. Go to https://www.finra.org, click on "For Investors" and then click on the menu of "Market Data Center" from the right of the screen. Choose "Bonds" from the menu on the left of the screen and choose "Search." Under "Search," click "Corporate," type the ticker symbol, and click "Show Results." A list of your company's outstanding bond issues will appear.
Assume that your company's policy is to use the yield to maturity on non-callable ten-year obligations as its cost of debt. Find the non-callable bond issue that is as close to ten years from maturity as possible. Find the yield to maturity for your chosen bond issue (it is the column titled "Yield") and enter that yield as your pre-tax cost of debt. Also, tell the maturity date (mm/dd/yyyy).
4. You now have the price for each bond issue, but you need to know the size of the issue. Returning to the Web page, hove the cursor around "Price" then arrange the bond issues in ascending order. Copy and paste the symbols of the bond issues and their prices into the Excel spreadsheet. Now, you need to know the amount outstanding of each bond issue. Place the mouse cursor on the symbol of each bond issue and right click on your mouse button and choose 'Open in new window' to open a Web page with all of the information about the bond issue. Scroll down until you find "Amount Outstanding" on the right side. Copy and paste the information onto the Excel spreadsheet. Repeat this step for all of the bond issues. Note that bond prices keep changing during the market operation.
So, now you have symbols, prices, and outstanding amounts of all bond issues in three columns in the Excel spreadsheet. Noting that the outstanding amounts are quoted in thousands of dollars (e.g., $60,000 means $60,000,000), record the issue amounts in the column of the outstanding amount.
5. The price of each bond issue in your spreadsheet is reported as a percentage of the bond's par value. For example, 104.50 means that the bond issue is trading at 104.50% of its par value. You can calculate the market value of each bond issue by multiplying the amount outstanding by (Price/100). Do so for each issue and then calculate the total of all the bond issues. This is the market value of our compnay's debt.
6. Compute the weights for your company's equity and debt based on the market value of equity and the market value of debt, computed in step 5.
7. Fill your company's cost of equity capital (i.e., ke) with the value you obtained from IV. (Video tutorial explains this part in a differntt way. Please ignore it).
8. Assuming that tax rate is 35%, calculate its effective cost of debt capital (i.e., kd).
9. Calculate your company's WACC.
Attachment:- template_assignment2_sp2016_last_firstname.xls
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