Appraise the importance of estimating a firm’s cost of capital and how it can be used in investment decisions.
Review the Walmart bond that matures in 2030. Evaluate whether it is correctly priced by the market as of Feb 2019 if the market prevailing yield for a similar bond is 3.4%. Suppose the bond makes coupon payments semi annually.
Using information from the case regarding the yield of Walmart’s bond, compute the after-tax cost of debt for Walmart.
In order to estimate the cost of equity, Dale and Lee were evaluating two different methods and were not sure which one is better. Calculate the cost of equity for Walmart using the following two methods and discuss their pros and cons.
Dividend Discount Model.
Capital Asset Pricing Model.
Estimate the overall weighted average cost of capital for Walmart using both the book value approach and the market value approach. Comparing your results from the two different approaches, which one is better? Is there any other approach that can be considered to estimate the weights?
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