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Module 6: Weighted Average Cost of CapitalPowerPoint Presentation

Module 6: Weighted Average Cost of Capital

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### Module 6: Weighted Average Cost of Capital

Brian Phelan

Agenda

- Background
- Beta
- Cost of equity
- Cost of debt
- WACC

Background

- Restructuring
- Billions in Impaired acquisitions
- Layoffs
- 5 year plan -> growth by 2015

HP SWOT Analysis

Source: OvidijusJurevicius at Strategic Management Insights

Beta Estimates

- Nasdaq.com
- Finance.yahoo.com
- Macroaxis.com
- Nyse.com
- Firstrade.com
- Zacks.com
- Data.cnbc.com
- Investing.money.msn.com

- 0.92
- 1.75
- 1.75
- 1.47
- 1.75
- 1.46
- 1.47
- 1.45

Beta Regression Results

- 95% confidence : 0.912 ≤ β ≤ 1.014

CAPM Cost of Equity Capital

- rEq= rrf + [β*(rMkt– rrf)]
- = 3.685% + [0.941*( 7.685% – 3.685%)]
- 7.449% = req

Cost of Debt Capital

- rD= Pretax borrowing rate x (1 – Tax Rate)
- = (621/19198) x (1 – 21.46%)
- 2.539% = rD

Cost of Enterprise Capital

- VD = $3,051 million (book value of NFL)
- Veq = $56,040 million (stock price of $29.36)
- Implied VEnt = $59,091 million
- rEnt = [(2.539% x (3,051/59,091)] +
[7.449% x (56,040/59,091)]

- rEnt = 7.196%

10% WACC DCF Model

Updated WACC DCF Model

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