Reference no: EM132190347
Question - Information from McCormick
As of today, McCormick's market capitalization (E) is $14,237,510,000. Market value of equity (E), also known as market cap, is calculated using the following equation: Market Cap = Share Price x Shares Outstanding.
McCormick's book value of debt is $3,237,150,000. Book value of debt (D) is calculated as follows: Book Value of Debt = Last Two-Year Average of Current Portion of Long-Term Debt + Last Two-Year Average of Long-Term Debt & Capital Lease Obligation.
Cost of Equity = Risk-Free Rate of Return + Beta of Asset x (Expected Return of the Market - Risk-Free Rate of Return)
Risk-free rate of return = 2.82 percent.
Beta = 0.30.
Market premium = (Expected Return of the Market - Risk-Free Rate of Return) = 6 percent
Cost of Debt = Last Fiscal Year End Interest Expense / Book Value of Debt (D). McCormick's last fiscal year end interest expense is $95.7 million.
Use the effective tax rate of 25.705 percent.
What is the cost of equity and cost of debt? Also, find the weighted average cost of capital.
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