THE COMPANY CHOSEN IS PITNEY BOWES
The purpose of this project is for you to have some practiceworking with financial concepts in the real world. This will involve integrating some materialfrom throughout the course. The projectwill also involve the development of your own approach to doing the work. The project does not provide a step-by-stepprocedure for you to follow.
Your task is to determine the WACC for a given firm usingwhat you know about WACC as well as data you can find through research. Yourdeliverable is to be a brief report in which you state your determination ofWACC, describe and justify how you determined the number, and provide relevantinformation as to the sources of your data.
Your research is to be independent from any information youmay find at thatswacc.com or similar sites although you might want to use suchsites to provide a reasonableness check on the WACC you calculate.
As you recall, the formula for WACC is
rWACC= (E/E+D) rE + D/(E+D) rD (1-TC)
The formula for the required return on a given equityinvestment is
ri= rf + βi* (RMkt-rf)
RMkt-rfis the Market Risk Premium. For thisproject, you may assume the Market Risk Premium is 4% unless you can develop abetter number.
rf is therisk free rate. The YTM on 10 year US Treasury securities is a goodapproximation.
You may assume acorporate tax rate of 40%.
One good source forfinancial data for companies as well as data about their equity is http://finance.yahoo.com. Bylooking around this site, you should be able to find the market capitalization(E) as well as the β for any publicly traded company.
There are not manyplaces left where data about corporate bonds is still available. One of them ishttp://finra-markets.morningstar.com/BondCenter. Tofind data for a particular company’s bonds, find the Quick Searchfeature, then be sure to specify corporate bonds and type in the name of theissuing company. This should give you a list of all of the company’soutstanding bond issues. Clicking on the symbol for a given bond issue willlead you to the current amount outstanding and the yield to maturity. You areinterested in both. The total of all bonds outstanding is D in the aboveformula.
If you like, youcan use the YTM on a bond issue that is not callable as the pre-tax cost ofdebt for the company.
Write a two orthree page report that contains the following elements:
1. Yourcalculated WACC.
2. Howdata was used to calculate WACC. This would be the formula and the formula withyour values substituted.
3. Sourcesfor your data.
4. Adiscussion of how much confidence you have in your answer. What were thelimiting assumptions that you made, if any.