Weighted Average Cost of Capital
INTRODUCTION: This session long project looks at the calculations used to determine the weighted average cost of capital (WACC). This SLP calculates the WACC for my SLP company – McDonalds, discusses how those calculations were arrived at and briefly describes WACC and what investors use it for.
COMPANY NAME: McDonalds Inc Balance sheet date: 31 DEC 07 Market values date: 1 SEP 08
SOURCE BOOK VALUE MARKET VALUE PROPORTIONS COST (%) PRODUCT
(a) (b) (c) (d) (e) (f) = (d) x (e) Short term liabilities 4498.5 4498.5 0.0538 0.01518 0.0008 Long term liabilities 9613.4 9613.4 0.1151 0.0272 0.0031 Shareholders ' Equity 69440 69440 0.8311 0.02449 0.0204
Total 83551.9 83551.9 1 0.0243
The basic way these numbers were arrived at was using the methods described in the session long project in module 4. The book values in column (b) are values that appeared in the most recent balance sheet of McDonalds. These totals were added together all of the items that appear under shareholders ' equity into one number - the total. The total of the book value is equal to the 'book ' or 'balance sheet ' value of the firm 's assets.
In column (c) insert your estimates of the 'market values '.
• For short term liabilities: you are to assume that the market value is equal to the 'book value '. This again was determined from the balance sheet and calculations of SLP module # 2
• For long term liabilities - use the present value of the long term liabilities, I used the estimated totals in SLP 2.
• For equity - the market value of equity is the total number of shares outstanding times the market price per share as of the date that you are working on the SLP. As of 1 SEP 08 the total shares outstanding for McDonalds was 1.12 billion at a price of $62 per share. This gave me the totals for shareholders equity.
Once these actions were complete, I total
COMPANY NAME: McDonalds Inc Balance sheet date: 31 DEC 07 Market values date: 1 SEP 08
SOURCE BOOK VALUE MARKET VALUE PROPORTIONS COST (%) PRODUCT
(a) (b) (c) (d) (e) (f) = (d) x (e) Short term liabilities 4498.5 4498.5 0.0538 0.01518 0.0008 Long term liabilities 9613.4 9613.4 0.1151 0.0272 0.0031 Shareholders ' Equity 69440 69440 0.8311 0.02449 0.0204
Total 83551.9 83551.9 1 0.0243
The basic way these numbers were arrived at was using the methods described in the session long project in module 4. The book values in column (b) are values that appeared in the most recent balance sheet of McDonalds. These totals were added together all of the items that appear under shareholders ' equity into one number - the total. The total of the book value is equal to the 'book ' or 'balance sheet ' value of the firm 's assets.
In column (c) insert your estimates of the 'market values '.
• For short term liabilities: you are to assume that the market value is equal to the 'book value '. This again was determined from the balance sheet and calculations of SLP module # 2
• For long term liabilities - use the present value of the long term liabilities, I used the estimated totals in SLP 2.
• For equity - the market value of equity is the total number of shares outstanding times the market price per share as of the date that you are working on the SLP. As of 1 SEP 08 the total shares outstanding for McDonalds was 1.12 billion at a price of $62 per share. This gave me the totals for shareholders equity.
Once these actions were complete, I total
References: www.msn money.com http://www.investopedia.com/terms/ www.wikepedia.com