Part 5: Weighted Average Cost of Capital (Chapter 13)Calculate the weights (proportions) of debt and equity for your company. For equity, you should use the market value of stock (number of shares times the current stock price). This is usually called Market Capitalization or Market Cap on websites. For debt, you can use the book value of long-term debt (from the balance sheet). While market values of debt are “better”, they are rather difficult to obtain. If your company has preferred stock, you can ignore it for simplicity.Estimate the required rate of return on debt for your company. Below are a few of ways to tackle this (points a, b, and c). Be sure to explain which of these methods you used. In other words, be sure I understand how you came up with your estimate of Rb.On Net Advantage, click on Fixed Income then Summary. On the upper left, you will see their current credit rating. Using that, go to FRED Economic Data by the St. Louis Fed. They have corporate bond data here: https://fred.stlouisfed.org/categories/32348 . You can use the Moody’s Seasoned Bond Yield or the ICE BofAML US Corporate Effective Yield option that best matches your company’s debt rating. For example, Coca Cola is rate A+ (S&P) and A1 (Moody’s), so I would use the ICE BofAML US Corporate A Effective Yield. On the graph, you can hover your cursor over the most recent date. The last number is the yield. It is also shown in the upper left corner of the chart. See your Chapter 13 notes for an example with Coke.Alternatively, you can take a weighted average using the bonds on Net Advantage. To do this, click on Fixed Income and then Securities Summary. You can click on the Excel icon right above the text Customize View. In Excel, you can use the “Amt. Outstdg. ($mm)” column to find the market values of these bonds. You can use these values to form weights to calculate the weighted average YTM for your firm, with the “Current YTW” as the YTM for the bonds.If your company does not have publicly traded debt, you will need to read the footnotes to the annual report. You should be able to get an estimated borrowing rate.For the tax rate, the marginal corporate tax rate is 21%. This will be fine to use unless your company is currently paying significantly less than this amount. You should check their income statement to see what rate they have paid in the past.Estimate your company’s weighted average cost of capital. Part 6: Estimating Firm Value (Chapter 13)Calculate free cash flow for your company for the current year and the past several years. Please note that you MUST use the most recent data available for this portion. In other words, your ratio analysis may use 2019 data but valuation must use 2020 if it released during the semester. You may NOT use FCFs from a website, since most are calculated differently. Examine the historic growth rate in free cash flows for your company. This rate may help you estimate a growth rate for future free cash flows. Be sure to show your historical FCF calculations. Using the WACC you estimated in Part 5, find the estimated value per share of your company. You will need to assume a growth rate in future free cash flows. You can either assume constant growth from the current year forward or you can assume differing growth rates that eventually stabilize (i.e. stable growth at the horizon). Note that having an estimated growth rate that is larger than the weighted average cost of capital is not sustainable. In this case, you will need to use a two stage approach, where the long-term growth rate at the horizon is smaller than the weighted average cost of capital.You must write a paragraph justifying your approach and growth rates. For growth rates, you can look at analyst projections (Yahoo Finance under Analysis or Net Advantage under Research or Morningstar under Stock Analysis or other!), your internal/sustainable growth estimates, historical growth rates, and industry growth projections.Part 7: Strengths, Weaknesses, and RecommendationPlease remember for this last part, you must base recommendations on findings in your report. You may add outside information, but your findings in the project must be the foundation for your recommendations.Assume you are a financial analyst. In approximately 2-4 pages, you need to summarize the strengths and weaknesses of your company based on the analyses above. It must reflect your calculations. Be sure to assess your firm’s riskiness based on your report.Prepare a recommendation to a client issuing a buy/hold/sell recommendation for stock in your company. You must pick BUY or SELL or HOLD – you cannot recommend more than one of these. Be sure to justify your recommendation based on your findings in the project. Be sure your recommendation considers your estimated price versus the actual price. For your recommendation, you may also add some non-project information. For example, your recommendation may include information about industry growth potential or emerging technologies or anything relevant that would encourage or discourage you from investing. This should be 1-2 pages in length. You might find it helpful to look at a recommendation on Seeking Alpha, Motley Fool, etc. However, keep in mind that these sites are focused on short-term investing and I’d like you to be thinking more long-term.

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