For your Module 3 SLP assignment, continue todo research on the company that you wrote about for Modules 1 and 2. For thisassignment, you will be estimating the weighted average cost of capital (WACC)for your chosen company. The final calculation will be fairly straightforward,as it involves just plugging in some numbers into an equation. However, themore challenging task will be finding the necessary numbers to plug into theformulas. You will need information such as the beta for your company, the bond-rating,and various information from its balance sheet. Links to some suggested Webpages for finding this kind of information is included in the instructions, butyou might be able to find other sources of information. Go step by step andpresent your information for Steps 1-4 below in a Word document. Make sure toshow all of your steps one by one and include the sources of your information:

1.Find out your chosencompany's credit rating. Rating agencies such as Moody’s and Standard andPoor’s assign ratings to companies. AAA is high, AA is lower, BBB is evenlower, etc. The higher the rating, the lower the cost of debt capital. Explainwhat your company’s credit rating is and the reasons for the high or low ratingbased on your research. Also, use the Fidelity Fixed Income Web page to find out what the current returnis for a 30-year bond for a corporation with the rating that your company has.This yield will be the approximate cost of debt capital for your company. Wewill call the cost of debt R_D.

2.Now estimate the costof equity for your company. First you will need the beta; you already foundthis for your Module 1 SLP. You will also need the three-month treasury billyield, which we will use as our measure of the risk-free rate. This rate shouldbe listed on the Fidelity Fixed Income Web page linked above. Finally, you willneed the equity risk premium. You can find estimates of this on many Web pagesincluding Fidelity Fixed Income or Gutenberg Research. It is usually around 5%. Once you have this information, youcan estimate the cost of equity as the 30-year treasury bill yield rate plusbeta multiplied by the equity premium:

Cost of Equity = risk-free rate + Beta * (Equity Premium).

Show your calculations. We will call the cost of equity R_E.

3.Now find out how muchof the firm's capital is equity and how much is debt. For the total value, lookat the balance sheet for your company as found on Google Finance or a similarWeb page. The total value of your company will be “total liabilities andshareholder’s equity.” The proportion of debt will be total liabilities dividedby total value, which we will call D/V. The proportion of equity will beshareholder’s equity divided by total value, or E/V. If you calculate themcorrectly, the proportions will add up to one.

4.Now we have all theinformation we need to get at least a rough ballpark estimate of WACC. Let’sassume a corporate tax rate of 35%. So the formula we will use is WACC = (E/V)*R_E +(D/V)* R_D *(1-.35)

Calculate WACC and show your computations. As a “reality check” on yourcalculations, the WACC should likely be in the single digits and positive.Compare what you found to the average WACC in your company’s industry, whichshould be available on Web pages such as Cost of Capital by Sector (US). Note that 35% is the official corporate taxrate, but many corporations find tax breaks. If your WACC is too low, trycomputing it with a lower tax rate such as 25% or 10%.

SLP Assignment Expectations

·Answer the assignmentquestions directly.

·Stay focused on theprecise assignment questions. Do not go off on tangents or devote a lot ofspace to summarizing general background materials.

·For computationalproblems, make sure to show your work and explain your steps.

·For short answer/shortessay questions, make sure to reference your sources of information with both abibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations.Another resource is the “Writing Style Guide,” which is found under “MyResources” in the TLC Portal.