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Module 6: Weighted Average Cost of Capital

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.

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Module 6: Weighted Average Cost of Capital

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  1. Module 6: Weighted Average Cost of Capital Brian Phelan

  2. Agenda • Background • Beta • Cost of equity • Cost of debt • WACC

  3. Background • Restructuring • Billions in Impaired acquisitions • Layoffs • 5 year plan -> growth by 2015

  4. HP SWOT Analysis Source: OvidijusJurevicius at Strategic Management Insights

  5. 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

  6. Bloomberg Beta Regression

  7. Beta Regression Inputs

  8. Beta Regression Results • 95% confidence : 0.912 ≤ β ≤ 1.014

  9. Bloomberg Cost of Equity

  10. CAPM Cost of Equity Capital • rEq= rrf + [β*(rMkt– rrf)] • = 3.685% + [0.941*( 7.685% – 3.685%)] • 7.449% = req

  11. Bloomberg Cost of Debt

  12. Cost of Debt Capital • rD= Pretax borrowing rate x (1 – Tax Rate) • = (621/19198) x (1 – 21.46%) • 2.539% = rD

  13. Bloomberg WACC

  14. 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%

  15. 10% WACC DCF Model

  16. Updated WACC DCF Model

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