Question

NOTE:- you have to refer the 10k report to do this question (the link is given below).. there is no separate data given.

Part 1

Using the 10K report for the firm you are analyzing, calculate your estimate of the weighted average cost of capital for the firm. Please justify your response and document all calculations.

10K report link : go to: https://investor.textron.com/investors/investor-resources/annual-report-and-proxy-materials/default.aspx , scroll down and "select 2016 annual report PDF"

direct link to the 10k report : https://s1.q4cdn.com/535492436/files/doc_financials/2016/Textron-AR2016-compiled.pdf

Part 2

(Using the same report from above)

1. What was the dollar value of the capital spending in the most recent 10K report?

2. Describe the major capital expenditures of the company (i.e. aircraft, equipment, etc.)

3. Find the Notes in the financial statements describing the capital spending. What do they reveal about the capital spending process at the company?

Answer 1

Part 1

Cost of Capital = Cost of equity + cost of debt

Cost of Debt (Kd) = Interest cost / total debt outstanding

                         =174 $m / 3680 $m

                         = 4.73 %

Cost of Equity = Dividend Paid / Market capitalisation of equity

                      = 22 $m / 270.287 $m

                      = 8.14 %

Weighted average cost of capital

Particular	Amount ($m)	Weight
Debt	3680	.93
Equity	270.287	.07

Cost of Capital = 093*4.73% + .07*8.17%

                      = 4.4 + 5.72 %

                     = 10.12 %

Part 2

1. Dollar value of capital spending = 446 $m

Note- Capital expenditure does'nt include spending on Research and development, Buss Acquisition.

2. Major capital expenditure include -

Particular	Amount (Spending) $m
Aviation (Aircraft)	157
Bell	86
System	71
Industrial and corporate	132

3. Property, plant and equipment are recorded at cost and depreciation is charged using Straight- line Method. In case where carrying value of the asset exceeds the sum of the undiscounted expected future cash flows( Fair value) , the asset is valued at fairvalue. Moreover pending climate change legislation, regulation, or international treaties will reasonably not have any material effect on capital expenditure.