FIN 515 Managerial Finance Second
Project- Google, Inc
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Second Project
The purpose of this project is for
you to have some practice working with financial concepts in the real
world. This will involve integrating some material from throughout the
course. The project will also involve the development of your own
approach to doing the work. The project does not provide a step-by-step
procedure for you to follow.
Your task is to determine the WACC
for a given firm using what you know about WACC as well as data you can find
through research. Your deliverable is to be a brief report in which you state
your determination of WACC, describe and justify how you determined the number,
and provide relevant information as to the sources of your data.
You should select a company for
which to research and find the WACC. You MUST email your instructor for
approval. I would suggest listing 3 choices as each student will
need to select a different company.Your research is to be independent from any
information you may find at thatswacc.com or similar sites although you might
want to use such sites to provide a reasonableness check on the WACC you
calculate.
Assumptions
As you recall, the formula for WACC
is
rWACC = (E/E+D) rE
+ D/(E+D) rD (1-TC)
The formula for the required return
on a given equity investment is
ri= rf + βi
* (RMkt-rf)
RMkt-rf is
the Market Risk Premium. For this project, you may assume the Market Risk
Premium is 4% unless you can develop a better number.
rf is the risk free rate.
The YTM on 10 year US Treasury securities is a good approximation.
You may assume a corporate tax rate
of 40%.
One good source for financial data
for companies as well as data about their equity is http://finance.yahoo.com. By looking around this site, you should be able to
find the market capitalization (E) as well as the β for any publicly traded
company.
There are not many places left where
data about corporate bonds is still available. One of them is http://finra-markets.morningstar.com/BondCenter. To find data for a particular company’s bonds, find
the Quick Search feature, then be sure to specify corporate bonds and
type in the name of the issuing company. This should give you a list of all of
the company’s outstanding bond issues. Clicking on the symbol for a given bond
issue will lead you to the current amount outstanding and the yield to
maturity. You are interested in both. The total of all bonds outstanding is D
in the above formula.
If you like, you can use the YTM on
a bond issue that is not callable as the pre-tax cost of debt for the company.
Deliverable
Write a two or three page report
that contains the following elements:
- Your calculated WACC.
- How data was used to calculate WACC. This would be the
formula and the formula with your values substituted.
- Sources for your data.
- A discussion of how much confidence you have in your
answer. What were the limiting assumptions that you made, if any.
When you have completed the project,
place it in one Word document and place that document in the appropriate
dropbox. Your document should be submitted to turnitin. Your match
percentage should not be greater than 20%. This paper should be original
to you. Remember that the turnitin database will compare your submission
with papers previously submitted to Devry/Keller as well as other universities.
Please be sure to review the grading
rubric for this assignment to make sure that you meet all grading criteria.
