Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, f over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely impo apital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 429 he weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC woul if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 an was interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surp. ounds reasonable. Using the CAPM, what is company A's WACC? ☐ % (Round to two decimal places.)
Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, f over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely impo apital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 429 he weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC woul if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 an was interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surp. ounds reasonable. Using the CAPM, what is company A's WACC? ☐ % (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Cargill's Cost of Capital. Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis, Minnesota, the company has been averaging sales
of over $112 billion per year over the past five-year period. Although the company does not have publicly traded shares, it is still extremely important for it to calculate its weighted average cost of
capital properly in order to make rational decisions on new investment proposals. Assuming a risk-free rate of 4.50%, an effective tax rate of 42%, and a market risk premium of 6.00%, estimate
the weighted average cost of capital first for companies A and B, and then make a "guesstimate" of what you believe a comparable WACC would be for Cargill. As shown in the popup window,
, if we take the approach that the beta for Cargill has to pick up all the incremental information, the beta would then fall between say 0.80 and 1.00. If the higher degree of international sales
was interpreted as increasing risk, beta would be on the higher end; yet being a commodity firm in the current market, its beta would rarely surpass 1.0. Thus, an estimate of 0.93 beta for Cargill
sounds reasonable.
Using the CAPM, what is company A's WACC?
☐ % (Round to two decimal places.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Company sales
Company A
$11 billion
Company's beta
Credit rating
0.82
AA
Weighted average cost of debt.
6.860%
Company B
$44 billion
0.71
A
7.120%
Cargill
$112 billion
0.93
AA
6.840%
Debt to total capital
34%
46%
27%
International sales/Sales
11%
34%
54%
-
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