Question
Please help thanks
For Kellog
Rating Fitch: BBB
Price 103.12
Coupon(%) 3.125
Maturity 17-May-2022
YTM(%) 2.661
Current yield(%) 3.030
Cost of Debt
-Use the yield to maturity from either your companyâs actual bond or from the similarly rated companyâs bond as an estimate for your companyâs pre-tax cost of debt.
-Calculate your companyâs after-tax cost of debt using a 35% marginal tax rate. (Pre-tax cost of debt)(1 â marginal tax rate). Note bond rating for each company.
Cost of Equity
-Estimate the cost of equity at least two ways:
CAPM (You must use CAPM as one of your methods.)
Reworked Gordon Model: (D1/P) + G
Bond yield + risk premium
-Remember to use the current RFR (10 year Treasury Bond). Assume Required Return on the Market is 11%. Get current stock price. Get estimated D1 and G from either Valueline or Yahoo Finance (analyst estimates).
-Decide on your best estimate of cost of equity to use in calculating WACC.
Calculate the Weights of each Component of the Companyâs Capital Structure
-Look at the companyâs balance sheet and assume their current capital structure is their target capital structure.
-Use only Long Term Debt and any Capitalized Leases in the weighting for debt.
-See if the company has any preferred stock to weight.
-Use total common shareholderâs equity for the weight of common equity.
Calculate the Companyâs Weighted Average Cost of Capital (WACC).
Question
Please help thanks
For Kellog
Rating Fitch: BBB
Price 103.12
Coupon(%) 3.125
Maturity 17-May-2022
YTM(%) 2.661
Current yield(%) 3.030
Cost of Debt
-Use the yield to maturity from either your companyâs actual bond or from the similarly rated companyâs bond as an estimate for your companyâs pre-tax cost of debt.
-Calculate your companyâs after-tax cost of debt using a 35% marginal tax rate. (Pre-tax cost of debt)(1 â marginal tax rate). Note bond rating for each company.
Cost of Equity
-Estimate the cost of equity at least two ways:
CAPM (You must use CAPM as one of your methods.)
Reworked Gordon Model: (D1/P) + G
Bond yield + risk premium
-Remember to use the current RFR (10 year Treasury Bond). Assume Required Return on the Market is 11%. Get current stock price. Get estimated D1 and G from either Valueline or Yahoo Finance (analyst estimates).
-Decide on your best estimate of cost of equity to use in calculating WACC.
Calculate the Weights of each Component of the Companyâs Capital Structure
-Look at the companyâs balance sheet and assume their current capital structure is their target capital structure.
-Use only Long Term Debt and any Capitalized Leases in the weighting for debt.
-See if the company has any preferred stock to weight.
-Use total common shareholderâs equity for the weight of common equity.
Calculate the Companyâs Weighted Average Cost of Capital (WACC).