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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.

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Module 6 weighted average cost of capital

Module 6: Weighted Average Cost of Capital

Brian Phelan


Agenda
Agenda

  • Background

  • Beta

  • Cost of equity

  • Cost of debt

  • WACC


Background
Background

  • Restructuring

  • Billions in Impaired acquisitions

  • Layoffs

  • 5 year plan -> growth by 2015


Hp swot analysis
HP SWOT Analysis

Source: OvidijusJurevicius at Strategic Management Insights


Beta estimates
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
Beta Regression Results

  • 95% confidence : 0.912 ≤ β ≤ 1.014



Capm cost of equity capital
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
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
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%




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