For Hershey Company (HSY) Two excel WACC (weighted average cost of capital) calculations, one using the...

For Hershey Company (HSY) Two excel WACC (weighted average cost of capital) calculations, one using the Cost of Equity from the SML (aka CAPM) Approach and another WACC calculation using the Dividend Growth Model Approach for Cost of Equity. Include a discussion explaining which Approach you prefer for WACC and why

Solutions

Expert Solution

Hi! Please check the attached picture for the solution.

CAPM model eliminate the unsystematic risk and takes into account systematic risk. While on other hand in gordan growth model, growtj assume as a constant.

So, CAPM model is right to the find cost of capital for WACC calculations.

Thank you.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

The weighted average cost of capital (WACC) is calculated as the weighted average of cost of...

The weighted average cost of capital (WACC) is calculated as the weighted average of cost of component capital, including debt, preferred stock and common equity. In general, debt is less expensive than equity because it is less risky to the investors. Some managers may intend to increase the usage of debt, therefore increase the weight on debt (Wd). Do you think by increasing the weight on debt (Wd) will reduce the WACC infinitely? What are the benefits and costs of...

What is Weighted Average Cost of Capital (WACC)?

Charlotte's Crochet Shoppe has 14,300 shares of common stock outstanding at a price per share of $75 and a rate of return of 11.61%. The company also has 280 bonds outstanding, with a par value of $2000 per bond. The pre-tax cost of debt is 6.13% and the bonds sell for 97.2% of the par. What is the weighted average cost of capital (WACC), if the tax rate is 40%?

20. Weighted Average Cost of Capital (WACC) primarily focused on: A.definition of “Weighted Average Cost of...

20. Weighted Average Cost of Capital (WACC) primarily focused on: A.definition of “Weighted Average Cost of Capital“ (WACC) and concept of costs of equity B.and debt, method of calculation C.WACC use in corporate financial management D. factors that affect the cost of equity and debs E. nature of costs of equity and debt calculation using the CAPM model 21. Business risks and their typology with focus on: A.risk classification criteria and their categorization according to the industry of the enterprise...

Select all options that describe the Weighted Average Cost of Capital (WACC) for a company: The...

Select all options that describe the Weighted Average Cost of Capital (WACC) for a company: The WACC represents the overall cost of the company's long term financing. It also represents the required return on the company's assets. The WACC for the company is equal to the cost of equity plus the cost of debt. This total cost of capital reflects the price of a single share in the company. The WACC for the company is equal to the cost of...

Which one of the following statements is correct concerning the weighted average cost of capital? (WACC)?...

Which one of the following statements is correct concerning the weighted average cost of capital? (WACC)? A. The pre?tax rate of return on the debt is the rate that is relevant to the computation of the WACC.?? B. When computing the? WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.?? C. The weight of the common stock used in the computation of the WACC is...

Does the Weighted Average Cost of Capital (WACC) account for demand?

The weighted average cost of capital (WACC) is an important tool for the capital structure. Go...

The weighted average cost of capital (WACC) is an important tool for the capital structure. Go to the website Yahoo! Industry Summary and look at Facebook Inc. and Alphabet Inc. Calculate the WACC for the two firms. How do the WACCs compare? Are the WACCs what you would expect? What causes the differences between the two firms’ WACCs?

Merk and Company Ltd has decided to use the weighted average cost of capital (WACC) to...

Merk and Company Ltd has decided to use the weighted average cost of capital (WACC) to discount the free cash flows associated with project evaluation. You have been given the task of determining the after-tax WACC of the firm. You are informed that Merk and Company Ltd uses the following securities to fund its operations:  7,000 individual bonds with a face value of $1000 that will mature in 10 years’ time offer a coupon that is paid half‐yearly. The...

(A) Please calculate the Weighted Average Cost of Capital (WACC) for the following company. Assumptions: Risk...

(A) Please calculate the Weighted Average Cost of Capital (WACC) for the following company. Assumptions: Risk free rate = 4.0%; Company’s spread = 2.0%; Expected return of the market = 9.0%; Company Beta = 1.10; Company debt to capitalization ratio = 40%; and Company tax rate = 30%. (Please be sure to show your calculations.) (B) Please define and explain the Hurdle Rate. (3 points)

evaluate Weighted Average Cost of Capital (WACC) concepts, why is WACC an important tool in the...

evaluate Weighted Average Cost of Capital (WACC) concepts, why is WACC an important tool in the evaluation of capital expenditure programs, financial structuring strategies, capital projects, equity recapitalization, dividend determination, financing working capital expansions, and evaluate WACC methods comparing other financial analysis applications used with WACC. can you also include your references.

Subjects