Collect the following data for the company assigned to you:
• Beta (use the current beta available at Marketwatch.com)
• Stock price and number of shares outstanding
• Interest-bearing debt from the last year’s balance sheet
• Taxes and taxable income from the last year’s income statement (tax rate = taxes/taxable income)
• 10-year Treasury yield
• There are three methods to calculate the cost of debt
- Find the company’s bond rating from Capital IQ and then pick the yield spread from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ratings.htm
- Collect long-term bonds’ yield to maturity from Capital IQ, and then take the average
- Divide the interest expense from the last year’s income statement by total interest bearing debt from the last year’s balance sheet (this is the least preferred method)
Calculate the weighted average cost of capital of the company. For the cost of equity, use a 6% market risk premium.