WACC Project for Marriott Incorporated using latest figures availableIn this project, you will find and discern the appropriate data to determine a realistic assessment of the weighted average cost of capital for a firm of your choosing.You will need to search for data from several sources, use subjective judgment to determine which data to use or discard, use subjective judgment to determine which calculation gives a more acceptable estimate and make some simplifying assumptions.The purpose of the projects is to show some of the sources of measurement errors in financial analysis, to introduce the diverse sources of publicly available financial information and to develop skill in analysis in situations where there are too much or too little data.Keep the following in mind when choosing a company:Publicly tradedNo utilitiesNo financial firmsNo all equity firmsNo firms with large amounts of convertible securities or warrantsOrganization of the paper should be as follows:Title pageTable of ContentsIntroduction/Background (2-3 pages)This section should include background on the company that has been chosen.Pages showing equations with data and brief descriptionThere is no page length given for this as it can vary greatly. This section is to be divided up based on the topics. In each section, you must show and explain the equations that are used. In addition, you are to draw any conclusions on the company you can from this data. Please note that detailed worksheets showing all of the calculations for this section are to be included in an appendix.Cost of Equity (Common Stock)Beta from Regression and two Betas from analystsBeta Chosen for CAPM and whyCapital Assets Pricing Model (include how determined RF and[ RMor (RM â RF)]Discounted Cash Flow (DCF) (only if dividends â include how determined)Own-Bond-Yield-plus-Judgmental-Risk-Premium (include how determine risk premium)Cost of Preferred StockCost of Debt (make sure to include table that lists all bond issues with weighted average cost of debt)Market Value of Debt (will have calculated above, but will need to add any long term leases from balance sheet to get total market value of debt)Market Value of EquityMarket Value of Preferred StockValue of FirmFirmâs Tax Rate (explain how determined)Weight for EquityWeight for Preferred StockWeight for DebtWACC (Weighted Average Cost of Capital)AssumptionsIncluding but not limited to RF, RM,RPM (which =Rm – RF),growth rate of dividends. This page should have a brief description of how you came up with the estimates with spreadsheets, etc. to be put in the appendix.AppendixAppendix should include all relevant data including debt data from Morningstar, calculations of weighted average cost of debt, stock returns, betas from analysts, beta regression analysis, method/sourcing for RFand RM,growth rates for dividends, different methods to determine tax rates, etc. Detailed descriptions, tables of data and excel sheets etc will be in the appendix.ReferencesHELPFUL EQUATIONSWACC = [(wE) x RE] + [(wPF) x RPF] + [(wD) x RD x (1- TC)]Where:Weights(wE) = % of common equity in capital structure(wPF) = % of preferred stock in capital structure(wD) = % of debt in capital structureComponent costsRE = firmâs cost of equityRPF = firmâs cost of preferred stockRD = firmâs cost of debtTC = firmâs corporate tax rateHELPFUL INFORMATIONUseful information will be found in the video, the sample Excel sheets, or your textâs tool kit Excel sheets. For instance:BondsYou enter the ticker symbol about half way down on the Morningstar bond page which you accessed by clicking on bonds on the first page.You will then see all the bonds for the company, in this case, Southwest Airlines.Copy and paste the information into an excel spreadsheet. You may adapt the bond spreadsheet given to you, or show your calculations in a new spreadsheet or show in another documentCalculating the Weighted Average Cost of DebtFind the market value of each bond issue. To do this find the number of bonds and then multiply by the price of the bond (remember that bond prices are quoted in 100s, but are really 1000s).If there is no bond price, assume $1000 par is the price.For these bonds, the YTM =coupon rateCalculate the total market value of bondsCalculate the weights for each bond issue as market value of bond issue/ Total market value of debt. Make sure your weights sum to one.For each bond issue, multiply the weight by that issueâs YTM.Sum the weighted YTMs, and you now have the weighted average RD,Calculating the Weights for the WACCMV of bonds has already been calculated. To that you will add in the value of leases from the Balance SheetFor Preferred Stock, find the number of preferred shares in the annual report and the prices in the WSJ Market CenterFor common equity, find the price and number of shares in Yahoo Finance.Can use example found in bottom half of bond worksheet or develop your own.Calculating the Required Return on Preferred StockTo Calculate RPF, we use the constant dividend model, ie. the perpetuity model.RPF = Dividend/P0Check in your companyâs annual report to see if they have preferred stock and what the dividend is. Make sure you use the yearly dividend since we are calculating annual returns.Prices can be found in the WSJ Market Center: http://online.wsj.com/mdc/public/page/2_3024-Preferreds.htmlCalculating the Required Return on Common StockCAPMDetermining BetaFind the beta from Yahoo Finance and Value line for your firm.Perform a regression using stock returns versus the appropriate market return.For most firms, the S&P 500 will be sufficient; if you chose a relatively smallfirm, you might want to use the NASDAQ returns.EXAMPLE:The example that I show you uses IBM and 60 months of historical monthly price data. I also used the monthly price data for the S&P 500.This information is downloaded first and then only the needed columns are cut and pasted into the spreadsheet and the monthly returns will be automatically calculated.Data on stock prices and dividends can be downloaded from the web and used to make betas for real companies. I demonstrate the process for IBM in this section. I downloaded stock prices and dividends from http://finance.yahoo.com for IBM using its ticker symbol IBM. I also downloaded data for the S&P 500 Index, whose symbol is ^GSPC to represent the market. Here are the steps I followed:Steps:Access the Internet, then go to http://finance.yahoo.com/Enter IBM in the symbol slot and then click Get quotes.Click on “Historical prices” to get a history of IBM prices.Enter a Start Date 5 years ago and a current ending date .Click the “monthly” button. then “Get prices” to get 5 years of monthly prices for IBM. The closing prices are adjusted for dividends and splits.Note that Yahoo’s data is downloaded as a CSV file. Save the file as an excel spreadsheet. Save as IBMRepeat the process to get the S&P index, symbol ^GSPC . Save this file as SP500 and in excel format.Open the IBM file and delete the columns except for the date and closing prices. Then open the SP500 file, copy the closing price data, and paste it into Column B on the IBM file.Now move the IBM data over to column D and then calculate the monthly returns on the market and on IBMNow you can run the regression of IBM’s returns on the market to find its betaRegression analysis is performed by following this command path: Tools => Data Analysis => Regression.This will yield the Regression input box. If Data Analysis is not an option in your Tools menu, you will have to load that program. Loading the Analysis ToolPak is different in each version of Office so you will have to determine how to find it. Once it is loaded, you will now be able to access Data Analysis. From this point, you must designate the Y input range (stock returns) and the X input range (market returns). You can have the summary output placed in a new worksheet, or you can have it shown directly in the worksheet, as I did, but be careful that you place it in a blank area of your spreadsheet.You may decide that a years worth of weekly data would be better, perhaps if there were something unusual two years ago. You could also use daily data, generally 200 days worth. In these cases you will have to adjust the spreadsheet for fewer/more data points.You must now decide if you want to average your betas or drop one of them. In our example , the calculated beta was .643 and we had two other estimates of .66 and .85. It would be your choice to either drop the .85 and average the other two, or average all three.You must justify your choices and provide citations in the body of your report and references at the end.You must now decide what value you will use for RF and either RM or RPM whereCAPM: RE = RRF + (RM â RRF)b= RRF + (RPM)b.Again, You must justify your choices for RF and either RM or RPMand provide citations in the body of your report and references at the end.The Own-Bond-Yield-Plus-Judgmental-Risk-Premium MethodRE = RD + Judgmental risk premiumThis judgmental-risk premium ¹ the CAPM equity risk premium, RPMProduces ballpark estimate of REUseful check, particularly if Dividend Growth and CAPM are significantly differentAgain, you must justify your answerDividend Growth ModelRE = {[D0* (1+g)] /P0 } + gThe challenge here is to estimate the growth rate. There are several suggestions in your text as well as in earlier videos.Corporate Tax RateYou may be able to find the corporate tax rate directly in the annual reportOr you can choose to use the formulaTaxes = Tax Rate * Earnings Before TaxesSince both Taxes and Earnings before Taxes are in the Balance Sheet, you can then calculate the tax rateReferenceMcDaniel, William (1997). The Cost of Capital Project Journal of Financial Education,Fall 1997. p. 57-66.
Our Service Charter
-
Excellent Quality / 100% Plagiarism-Free
We employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers. -
Free Revisions
We keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed. -
Confidentiality / 100% No Disclosure
We make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service. -
Money Back Guarantee
If the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit. -
24/7 Customer Support
We have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.