FNC 440

docx

School

Harvard University *

*We aren’t endorsed by this school

Course

102,321

Subject

Finance

Date

Nov 24, 2024

Type

docx

Pages

5

Uploaded by LieutenantGoose2748

Report
FINC 440 Student’s Name Institutional Affiliation Instructor Due Date
2 FINC 440 1. WACC WACC = Wd × Rd × (1 - t) + Wp × rp + We × Re Wd = the percentage of the form's existing debt that is used when further funds are raised Rd is an abbreviation for the marginal cost of debt pre-tax. T = the tax rate at the margin Wp is the percentage of preferred stock that the company issues in order to raise additional capital. Rp is an abbreviation for "marginal cost of preferred stock." When it comes to obtaining additional cash, "we" refers to the share of stock that the company utilizes. R = the equity's marginal cost of capital In order to determine the WACC, many rates must be used, including the return on the firm’s ordinary stock, the return on its preferred stock, and the return on its long-term debt. The business's WACC may be determined by using the information provided in the company form, including the cost of equity, total equity, total debt, cost of capital, and corporation tax. Only the cost of debt and the cost of equity need to be determined. Cost of Debt = Interest Expenses/Total Debt = 2063 / 64522.5 = 3.1973 percent. 13.47 percent is the most recent two-year average tax rate.
3 Cost of Equity = Risk-free rate of return + beta × (Expected rate of return – risk-free rate of return) Cost of Equity = 3.507 percent + 0.90 (6 percent) = 8.907 percent Weighted Average Cost of Capital = E / (E + D) × Cost of Equity + D / (E + D) × Cost of Debt × (1 - Tax Rate) = 0.9662 × 8.907% + 0.0338 × 3.1973% × (1 - 13.47%) WACC = 8.7% 2. Beta The beta measure of the asset's susceptibility to changes in the market's anticipated return. Beta for Microsoft is at 0.90. A high beta indicates not just high risk but also high profits. A lower beta indicates that there is less volatility in the stock ( Giese et al., 2019) . 3. Managing Earnings Microsoft Company appears to manage earnings. For the three months ending in December 2022, Microsoft's Cost of Goods Sold amounted to $17,488,000,000. For the quarter ending in December 2022, revenue was $52,747,000,000. For the quarter ending in December of 2022, Microsoft's Cost of Goods Sold to Revenue ratio was 0.33. The company's bottom line is influenced by its COGS because of the relationship between the two metrics of Gross Margin and Cost of Goods Sold. For the fiscal quarter ending in December of 2022, Microsoft had a gross margin of 66.85 percent, thus Microsoft appears to manage the earnings. When a
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
4 company's yearly profits fluctuation is modest or nonexistent, it is a sign that the company's earnings have stabilized. 4. Most Important Things Learned Readings and studying this week taught me how to compute the WACC, which is the most significant thing I picked up, and I also gained more knowledge about the firm I chose to analyze for this class. Those discoveries will be of use to me with the tasks that are to come in this class.
5 Reference Giese, G., Lee, L. E., Melas, D., Nagy, Z., & Nishikawa, L. (2019). Foundations of ESG investing: How ESG affects equity valuation, risk, and performance. The Journal of Portfolio Management , 45 (5), 69-83.