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how do you compare Toyota and Tesla three years stock return? what does this stock indicate about Tesla and Toyota

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Bunny Greenfelder
Bunny GreenfelderLv2
28 Sep 2019

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1. Most publicly traded corporations are required to submit 10Q (quarterly) and 10K (annual) reports to the SEC detailing their financial operations over the previous quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search for Company Filings” link and the “Companies & Other Filers” link, enter “Tesla,” and search for SEC filings made by Tesla. Find the most recent 10Q and 10K and download the forms. Look on the balance sheet to find the book value of debt and the book value of equity. If you look further down the report, you should find a section titled either “Long-Term Debt” or “Long-Term Debt and Interest Rate Risk Management” that will list a breakdown of Tesla’s long-term debt.

2. To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol “TSLA.” Follow the various links to find answers to the following questions: What is the most recent stock price listed for Tesla? What is the market value of equity, or market capitalization? How many shares of stock does Tesla have outstanding? What is the beta for Tesla? Now go back to finance.yahoo.com and follow the “Bonds” link. What is the yield on 3-month Treasury bills? Using a 7 percent market risk premium, what is the cost of equity for Tesla using the CAPM?

3. Go to www.reuters.com and find the list of competitors in the industry. Find the beta for each of these competitors, and then calculate the industry average beta. Using the industry average beta, what is the cost of equity? Does it matter if you use the beta for Tesla or the beta for the industry in this case?

4. You now need to calculate the cost of debt for Tesla. Go to finra-markets.morningstar .com/BondCenter/Results.jsp, enter Tesla as the company, and find the yield to maturity for each of Tesla’s bonds. What is the weighted average cost of debt for Tesla using the book value weights and the market value weights? Does it make a difference in this case if you use book value weights or market value weights?

5. You now have all the necessary information to calculate the weighted average cost of capital for Tesla. Calculate the weighted average cost of capital for SMI using book value weights and market value weights assuming SMI has a 35 percent marginal tax rate. Which cost of capital number is more relevant?

6. You used Tesla as a representative company to estimate the cost of capital for SMI. What are some of the potential problems with this approach in this situation? What improvements might you suggest?

During a 52 week range Toyota Motor Company shares traded between $97.8 and $142.34 and dividend was $3.26 per share. The local currency depreciated by 2.5% against the dollar during the period. If you bought the stock at $98.50 and sold it at $120, what was your total dollar return, in percent on Toyota stock for the year?

To estimate the cost of equity for Tesla, go to finance.yahoo.com and enter the ticker symbol ‘TSLA’ in Search Finance. Follow the various links to find answers to the following questions:

What is the most recent stock price listed for Telsa? What is the market value of equity or market capitalization? What is the beta for Tesla? Click on More Key Statistics. How many shares of stock does Tesla have outstanding?

Now go back to finance.yahoo.com home page and follow the ‘Bonds’ link (on the left menu click on the ‘Market Data’ and then scroll down to Bonds). What is the yield on 3-month Treasury Bills? What is the yield on the 10-year Treasury Bond? Using the CAPM, calculate the cost of equity for Tesla using a 7 percent market risk premium and using the yield 3-month Treasury Bills and the yield on the 10-year Treasury Bonds as proxies for the risk-free rate. Does it matter if you use the yield on 3-month Treasury Bills or the yield on 10-year Treasury Bonds in this case? As the company is an ongoing enterprise expected to continue for years to come, which would be more appropriate using the yield on 3-month Treasury Bills or the yield on 10-year Treasury Bonds?

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