The purpose of this analysis is to estimate the cost of equity and the weighted average cost of capital for a firm. You will apply some of the methods we will learn in class. In particular, you will be estimating the cost of equity capital using the dividend growth model (described in
Chapter 7 of your text), estimating beta and using the Capital Asset Pricing Model (described in
Chapter 12), and calculating a Weighted Average Cost of Capital (described in Chapter 13).
This will introduce you to some of the sources available for financial data, provide the opportunity for manipulating real data, and allow practice in using Excel or another spreadsheet program. You will be randomly assigned a company for this analysis. Your task is to determine your company’s current Weighted Average Cost of Capital. You will be collecting data related to your company and calculating the cost of equity capital in three different ways and using those values to calculate the WACC. For simplicity, we will assume that it is January 2012.
Please note that this is a term assignment, so you should be working on it throughout the semester. I have included suggested dates to complete each part to help you manage your time.
The analysis is due on Wednesday, November 14, but you can submit parts earlier if you would like to have them checked so that you can fix any problems (but no later than November 7). You will be provided with Excel templates on courselink which you should use for submitting your data and calculations. For those without access to Excel, pdf versions of the templates are also provided on courselink. You do not have to use the exact version of my templates, but you do need to use a spreadsheet program (you should not do the calculations by hand) and present your results in an easily understood format with sources and calculations shown. Hard copies of all three templates should be submitted in class or to the box in MacK 723 by 4:00 pm on November
14. Please make sure that they are formatted and sized appropriately so that they can be easily read and understood. Late submissions will lose 10% per class day.
Data Collection (October 3)
• Monthly closing stock prices (in Canadian dollars) for your company for the period
Jan. 1, 2008 - Dec. 31, 2011 (NOTE: These can be adjusted closing prices as they will make your subsequent calculations easier, but you must state whether the prices you provide are adjusted or unadjusted. You will need the actual closing price for Dec. 31,
• The best source is www.ca.finance.yahoo.com.
• Dividends paid by your company for the years 2007 - 2011. You should also provide information about any stock splits or stock dividends.
• A good source is www.ca.finance.yahoo.com, but it sometimes misses dividends or records them incorrectly, so it is best to verify by checking the company’s website.
Financial statement information from year end 2011: Long-Term Debt, Book Value of
Equity, number of shares outstanding, Net Income, and Earnings per Share.
• These can be found at www.google.ca/finance, www.tmx.com, or on the company’s website. Your company’s debt rating.
• Sometimes this will be listed on the company’s website. Some sites to check are moodys.com, fitchratings.com or standardandpoors.com. These sites may require registration, but, at least at the moment, they are free. You can also get bond ratings from FP Bonds–Corporate, located in the reference section of the library. A google search may also turn up the debt rating. Some companies do not get their debt rated, so you can assume a BBB rating for those.
• Monthly closing prices for the S&P-TSX Composite Index for the period Jan. 1, 2008 Dec. 31, 2011.
• The best source is www.ca.finance.yahoo.com. The company symbol will be
• The 3-month Canada Treasury Bill yield and the yield on a 7-year Government of Canada