Module 6 : Cost of Capital and Valuation

1. Module 6: Cost of Capital and Valuation Mairin Talerico

2. Snapshot of Toyota Limited liability, joint-stock company incorporated under Commercial Code of Japan; started in 1930s Primarily in automotive industry, but also financial services and others Sold 9.98 million vehicles in fiscal 2013 Sell in 170 different countries and regions Primary markets: Japan, North America, Europe and Asia

3. Cost of Equity Using CAPM

4. CAPM Cost of Equity

5. Cost of Equity - Bloomberg • Bloomberg method cost of Equity calculation is much higher than the CAPM calculation • Actual Bloomberg Terminal cost of equity=13.5%

9. Cost of Debt Capital =(Interest expense / Average amount of interest-bearing debt) x (1-tax rate) =FEAT/NFL Once Operating Leases are included, 12% will decrease *Bloomberg Terminal cost of debt = .40%

11. Cost of Enterprise Capital • For Toyota: • VD = $43,917 million (book value of NFL) • VEq = $353,903 million (stock price of $102.64 at March 31, 2013 times 3,448 million common shares outstanding) • Implied VEnt = $397,820 million ($43,917 + $353,903) • Bloomberg Terminal WACC = 7.8%

12. Valuing Toyota Estimated growth rate beyond 2017: 3.68% Estimate of enterprise cost of capital: 10.64%

13. Questions?