Student: Finance and Foods Market

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FI-516 – WEEK 2 – MINI – CASE ASSIGNMENT
Select a major industrial or commercial company based in the United States, and listed on one of the major stock exchanges in the United States. Each student should select a different company. Avoid selecting an insurance company or a bank, as the financial ratios for these financial businesses are different. Write a 7 – 8 page double spaced paper answering and demonstrating with calculations and financial data the following questions:

1. What is the name of the company? What is the industry sector? * The company name is Whole Foods Market Inc.
* Whole foods market, Inc. is the Food Retailers & Wholesalers industry. * The products include: grocery, seafood, bakery, prepared foods, meat and poultry, dietary and nutritional supplements, vitamins, specialty (beer, wine and cheese) body care products, floral and household products and pet products.

2. What are the operating risks of the company?
* Organic foods market has several laws and regulations relating to health, sanitation and food labeling. * FDA, FTC, CPSC, USDA and EPA have set standards for the manufacture, packaging, and advertising of organic products. * If failure to qualify these standards could result in the confiscation of marketing and sales licenses.

3. What is the financial risk of the company (the debt to total capitalization ratio)? Debt to total capitalization ratio = Debt / (Shareholder’s equity + Debt) -------------------------------------------------

1,300,770 / 4,292,075 = 30.31%

4. Does the company have any preferred stock?
No, the Whole foods market, Inc. does not have any preferred stock.

5. What is the capital structure of the company?: Short term portion of Long Term Debt, Long Term Debt, Preferred Stock (if any), and market value of Common Stock issued and outstanding? * Capital structure:

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Total Debt to Total Equity: 0.60
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Total Debt to Total Capital: 0.60
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Total Debt to Total Assets: 0.42
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Long-Term Debt to Equity: 0.58
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Long-Term Debt to Total Capital: 0.58

* The Whole foods market, Inc. does not have any short-term portion of long-term debt, and there is no preferred stock. * Long-term debt: $17.44 million
* The Whole foods market, Inc. has 300,000 share authorized and $178.89 million shares issued and outstanding at 2011.

6. What is the company’s current actual Beta?
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* The current actual Beta is 0.66

7. What would the Beta of this company be if it had no Long Term Debt in its capital structure? (Apply the Hamada Formula.) -------------------------------------------------
BL= B1 [1+(1-T) (D/E)]
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= 0.66 / [1+(1-0.35) (0.43)]
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= 0.52

8. What is the company’s current Marginal Tax Rate?
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35%

9. What is the Cost of Debt, before and after taxes?
The cost of debt before taxes is 6.7%, and after taxes is 4.5%.

10. What is the Cost of Preferred Stock (if any)?
The Whole foods market, Inc. does not have any preferred stock.

11. What is the Cost of Equity?
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Cost of Equity = (Dividends per share/current market value of stock)+Growth Rate of Dividends -------------------------------------------------
= (0.40 / $86.47) + 0.56%
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= 0.01

12. What is the cash dividend yield on the Common Stock?
The cash dividend yield on the common stock is 0.56 (0.60%)

13. What is the Weighted Average Cost of Capital of the company?...
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