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Pick any of the globally publicly listed companies ( NISSAN )compute the company’s overall
weighted average cost of capital (WACC) that can be used to evaluate a project that has a life of 10 yrs. Write
up your analysis (should not exceed 4 pages) adhering to the following steps:
An introductory paragraph briefly talking about your company and why you chose it.
Estimation of the risk-free rate (provide the value, source, date, as well as short explanation behind your
answer)
Estimation of the equity market risk premium (provide the value, source, as well as short explanation behind
your answer)
Estimation of beta (use the monthly stock prices of the last 5 years to estimate the beta, present the estimation
in a graph, and interpretation of what the beta of your company implies)
Computation of your estimated cost of common equity using CAPM (points 2,3,4 above). For comparison of
your estimated cost of common equity, compute the cost of common equity using the dividend discount model
as well, in this case show the estimation of the upcoming dividend and growth in dividends (provide the value,
source, for all your computations).
Estimation of cost of debt (provide the value as well as a short explanation behind that)
Estimation of the WACC (describing in detail how you got the target capital structure weights, including the
sources and dates of when the information was gathered).
Explain what the WACC means, how can you use it in decisions, and do you think that you got a reasonable
estimate.
Explain why a MNC company might need to use a different cost of capital to evaluate the projects of its foreign
subsidiaries rather than using the domestic parent’s cost of capital.
Sample Solution
The post Calculation of Cost of Capital for a Foreign Company (Nissan ) appeared first on acestar tutors.
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