For Walt Disney Corp
This week, your assignment is to calculate the weights(proportions) of debt and equity for your company. For equity you can use themarket value of stock (number of shares times the current stock price). Fordebt, you can use the book value of long-term debt (from the balance sheet).While market values of debt are "better," they are rather difficultto obtain. Estimate the required rate of return on debt for your company. Thefollowing are three possible approaches: a) You can use the credit ratingprovided by Standard & Poor's or Moody's. Use the ratings to find currentyields above risk-free rates. b) Go toFINRA Market Data. This will give theyield to maturity for EACH bond. You need one measure of the cost of debt, soyou will have to figure out an appropriate way to handle multiple debt issues.c) If your company does not have publicly traded debt (and/or both the previoustwo approaches did not work), you will need to read the footnotes to the annualreport. You may be able to get their estimated borrowing rate. After gatheringthe information:
•Estimate your company's weighted average cost of capital. Youcan use the income statement information to estimate the tax rate.
•If your company uses this in the capital budgeting process(i.e., as the discount rate in NPV and IRR), what assumptions are they making?
•Does your company face any particular difficulties in using thisrate? For example, does your company have different divisions or units thatmight have differing levels of risk?
Write up a 2 page summary of your findings, including anycalculations you might have made, and describe which method you used to findthe required rate of return on debt for your company.
Prepare an additional 2 page report consisting of the capitalstructure choices, as well as an executive summary of your research.
You will examine the mix of debt and equity that your firm uses.After finding this information:
•Compare this to an industry average or a main competitor. Whatare the differences?
•Based on what you know about your selected company, do thesedifferences seem appropriate?
•Relate your company's capital structure choices to theappropriate capital structure theory(ies).
Also, as a component of your executive summary, obtain the currentstock price for your company and use it as an additional calculation. Basedupon all of your research, would you recommend investing in this company?Justify your answer.