5. Market value of preferred stock - Current market price times number of shares outstanding. Most companies DO NOT have preferred stock. Ignore this step and Step 6 if you cannot find any preferred stock listed on the balance sheet. 6. Cost of preferred stock – Annual Preferred Stock dividend divided by the current market price of the preferred stock 7. Compute the Weighted Average Cost of Capital Use the WACC formula remembering to adjust the cost of debt for its preferential tax treatment. You can use the company's average tax rate (tax expense divided by taxable income) or 0% if the company has losses. The tax rate is usually reported in footnotes to the financial statement. Where: Total Capital is the sum of values for Debt + Preferred + Equity CostDebt is the After-tax cost of debt = Cost x (1 - Tax Rate) Neither Preferred nor Common Stock receive any tax treatment (i.e. After tax cost = before tax cost) 8. Submit your WACC estimate Please send me the following information in an email (not as an attachment): Your name Company name and ticker symbol Market (or book) values of debt, preferred stock and common stock. The tax rate used to compute the after-tax cost of debt. The cost of each type of security, e.g., the rates used in the WACC computation. Your WACC estimate A brief discussion of what problems or weaknesses you see in your estimate.
5. Market value of preferred stock - Current market price times number of shares outstanding. Most companies DO NOT have preferred stock. Ignore this step and Step 6 if you cannot find any preferred stock listed on the balance sheet. 6. Cost of preferred stock – Annual Preferred Stock dividend divided by the current market price of the preferred stock 7. Compute the Weighted Average Cost of Capital Use the WACC formula remembering to adjust the cost of debt for its preferential tax treatment. You can use the company's average tax rate (tax expense divided by taxable income) or 0% if the company has losses. The tax rate is usually reported in footnotes to the financial statement. Where: Total Capital is the sum of values for Debt + Preferred + Equity CostDebt is the After-tax cost of debt = Cost x (1 - Tax Rate) Neither Preferred nor Common Stock receive any tax treatment (i.e. After tax cost = before tax cost) 8. Submit your WACC estimate Please send me the following information in an email (not as an attachment): Your name Company name and ticker symbol Market (or book) values of debt, preferred stock and common stock. The tax rate used to compute the after-tax cost of debt. The cost of each type of security, e.g., the rates used in the WACC computation. Your WACC estimate A brief discussion of what problems or weaknesses you see in your estimate.
6640SyllabusFall2015.docx