FIN 420 AIB Explain WACC & How Can You Use It in Decisions Lockheed Martin CO Ques

you need to compute the company’s overall weighted average cost of capital (WACC). Write up your analysis (should not exceed 6 pages) adhering to the following steps:

  • An introductory paragraph briefly talking about your company and why you chose it.
  • Estimation of the risk-free rate (provide the value, source, date, as well as short explanation behind your answer)
  • Estimation of the equity market risk premium (provide the value, source, as well as short explanation behind your answer)
  • Estimation of beta (use the monthly stock prices of the last 5 years to estimate the beta, present the estimation in a graph, and interpretation of what the beta of your company implies)
  • Computation of your estimated cost of common equity[1] using CAPM (points 2,3,4 above). For comparison of your estimated cost of common equity, compute the cost of common equity using the dividend discount model as well, in this case show the estimation of the upcoming dividend and growth in dividends (provide the value, source, for all your computations).
  • Estimation of cost of debt[2] (provide the value as well as a short explanation behind that)
  • Estimation of the WACC (describing in detail how you got the target capital structure weights, including the sources and dates of when the information was gathered).[3]
  • Explain what the WACC means, how can you use it in decisions, and do you think that you got a reasonable estimate.
  • Explain why a MNC company might need to use a different cost of capital to evaluate the projects of its foreign subsidiaries rather than using the domestic parent’s cost of capital.
  • Explain what the WACC means, how can you use it in decisions, and do you think that you got a reasonable estimate.

Useful Data Sources:

– To get the US treasury bills and bonds rates go to : www.ustreas.gov

– To get the company’s stock price and beta visit MSN money, Yahoo Finance, or any other finance web source of your choice

– To get the company’s financial statements, go to the company’s website, or the SEC website- Filings – Edgar search tools (http://www.sec.gov/edgar/searchedgar/webusers.htm#.U3Jnfv1OXIU). Search for form 10 K (annual report).

– To get the default risk premium rates go to Damodaran’s website ( http://damodaran.com ) , go to capital structure, and then Ratings, spreads, and Interest coverage rates.

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