At&T - Capital Structure and Wacc Calculation

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Executive summary
AT&T is the largest communications holding company in the world by revenue. In 2008, the company continued to set the pace for industry growth. Revenues as well as per-share earnings increased during this period. The company strengthened its position in key consumer segments and returned value to stockholders through two means – stock buybacks and strong dividends. Highlights of the company’s 2008 financial performance include consolidated revenues that were up more than 4% over the previous year, reported EPS growth at 11.3% to $2.16 per share, return of $15.6 to shareholders through share buybacks and strong dividends. About 43.8% of the total capital of the company comes from debt and the remaining comes from equity. The cost of the different components of its capital structure are – debt: 2.92% (after-tax cost), and equity: 9.49%. The WACC is 6.61%, based on the capital structure outlined. The effective tax rate is 35.4%. AT&T has had dividend growth for the last 25 years. The dividend growth this year was 2.5% and the last year was 12.7%. Dividends declared totalled $1.61 per share in 2008, $1.465 per share in 2007 and $1.35 per share in 2006. The dividend policy considers both the expectations and requirements of stockholders, internal requirements of AT&T and long-term growth opportunities. Introduction

AT&T is the largest communications holding company in the world by revenue. It is also one of the largest companies on the Fortune 500 and Fortune Global 500 lists. In 2008, the company had reported consolidated revenue of $124 billion. Randall L. Stephenson is the chairman and chief executive officer of AT&T, whose global headquarters are in Dallas, Texas, USA and the company employs a workforce of over 294,000 worldwide. AT&T is America’s fastest 3G network serving 81.6 million customers. The company’s offerings include voice coverage in more than 215 countries, data roaming in more than 185 and 3G in more than 100 countries. AT&T is the U.S. wireless carrier for the new iPhone 3GS, which launched in June 2009 and revolutionized the industry. It is also the only U.S. national service provider to offer a 100 percent IP-based television service with U-verse TV and the USA's largest provider of broadband — more than 17.1 million high speed Internet subscribers (as of 3Q09). Apart from broadband, AT&T is also the largest Wi-Fi provider, offering customers access at more than 125,000 hot spots spanning countries around the world. AT&T is one of the world's largest providers of IP-based communications services for businesses, with an extensive portfolio of Virtual Private Network (VPN), Voice over IP (VoIP) and other offerings, as well as the USA's largest directory publisher, delivering print directories to 173 million. The company is also the leading U.S. provider of local and long distance voice services and a world leader in the transport and termination of wholesale traffic — widely recognized for its industry-leading wholesale services portfolio. In 2008, the company continued to set the pace for industry growth. Revenues as well as per-share earnings increased during this period. The company strengthened its position in key consumer segments and returned value to stockholders through two means – stock buybacks and strong dividends. Highlights of the company’s 2008 financial performance include consolidated revenues that were up more than 4% over the previous year, reported EPS growth at 11.3% to $2.16 per share, return of $15.6 to shareholders through share buybacks and strong dividends. Financial statements

We have reproduced below, the financial statements of the company from its 2008 annual report. Consolidated Balance SheetsDollars in millions except per share amounts12-31-0812-31-07AssetsCurrent Assets Cash and cash equivalents1,792$ 1,970$ Accounts receivable - net of allowances for uncollectibles of $1,270 and $1,36416,047 16,185 Prepaid expenses1,538 1,524 Deferred income taxes1,014...
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