Weighted Average Cost of Capital The December 31, 2018, partial financial statements taken from the annual report for AT&T Inc. (T ) follow. Consolidated Statements of Income Dollars in millions except per share amounts 2018 2017 Operating revenues Service $152,345 $145,597 Equipment 18,411 14,949 Total operating revenues 170,756 160,546 Operating expenses Equipment 19,786 18,709 Broadcast, programming and operations 26,727 21,159 Other cost of services (exclusive of depreciation and amortization show separately below) 32,906 37,942 Selling, general and administrative 36,765 35,465 Abandonment of network assets 46 2,914 Depreciation and amortization 28,430 24,387 Total operating expenses 144,660 140,576 Operating income 26,096 19,970 Other income (expense): Interest expense (7,957) (6,300) Equity in net income of affiliates (48) (128) Other income (expense) - net 6,782 1,597 Total other income (expense) (1,223) (4,831) Income before income taxes 24,873 15,139 Income tax expense 4,920 (14,708) Net income $19,953 $ 29,847 Consolidated Balance Sheets -- Liabilities and Equity Sections Dollars in millions except per share amounts, December 31 2018 2017 Current liabilities Debt maturing within one year $10,255 $38,374 Accounts payable and accrued liabilities 43,184 34,470 Advanced billed and customer deposits 5,948 4,213 Accrued taxes 1,179 1,262 Dividends payable 3,854 3,070 Total current liabilities 64,420 81,389 Long-term debt 166,250 125,972 Deferred credits and other noncurrent liabilities: Deferred income taxes 57,859 43,207 Post employment benefit obligation 19,218 31,775 Other noncurrent liabilities 30,233 19,747 Total deferred credits and other noncurrent liabilities 107,310 94,729 Stockholders' equity Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2018 and 2017; issued 7,620,748,598 at December 31, 2018 and 6,495,231,088 at December 31, 2017) 7,621 6,495 Additional paid-in capital 125,525 89,563 Retained earnings 58,753 50,500 Treasury stock (339,120,073 at December 31, 2018 and 355,806,544at December 31, 2017, at cost) (12,059) (12,714) Accumulated other comprehensive income 4,249 7,017 Noncontrolling interest 9,795 1,146 Total stockholders' equity 193,884 142,007 Total liabilities and stockholders' equity $531,864 $444,097 Consolidated Statements of Stockholders' Equity -- Excerpts 2018 Amount in millions except per share amounts, December 31 Shares Amounts Common Stock Balance at beginning of year 6,495 $ 6,495 Issuance of stock 1,126 1,126 Balance at end of year 7,621 $7,621 Additional Paid-In-Capital Balance at beginning of year $ 89,563 Issuance of common stock 35,473 Issuance of treasury stock (115) Share-based payments 604 Balance at end of year $125,525 Retained Earnings Balance at beginning of year $50,500 Net income attributable to AT&T ($2.85 per diluted share) 19,370 Dividends to stockholders ($2.01 per share) (14,117) Cumulative effect of accounting changes and other adjustments 3,000 Balance at end of year $ 58,753 Treasury stock Balance at beginning of year (356) $(12,714) Repurchase of common stock (20) (692) Issuance of treasury stock 37 1,347 Balance at end of year (339) $(12,059)
Weighted Average Cost of Capital
The December 31, 2018, partial financial statements taken from the annual report for AT&T Inc. (T ) follow.
|
Consolidated Statements of Income |
||
|
Dollars in millions except per share amounts |
2018 |
2017 |
|
Operating revenues |
||
|
Service |
$152,345 |
$145,597 |
|
Equipment |
18,411 |
14,949 |
|
Total operating revenues |
170,756 |
160,546 |
|
Operating expenses |
||
|
Equipment |
19,786 |
18,709 |
|
Broadcast, programming and operations |
26,727 |
21,159 |
|
Other cost of services (exclusive of |
32,906 |
37,942 |
|
Selling, general and administrative |
36,765 |
35,465 |
|
Abandonment of network assets |
46 |
2,914 |
|
Depreciation and amortization |
28,430 |
24,387 |
|
Total operating expenses |
144,660 |
140,576 |
|
Operating income |
26,096 |
19,970 |
|
Other income (expense): |
||
|
Interest expense |
(7,957) |
(6,300) |
|
Equity in net income of affiliates |
(48) |
(128) |
|
Other income (expense) - net |
6,782 |
1,597 |
|
Total other income (expense) |
(1,223) |
(4,831) |
|
Income before income taxes |
24,873 |
15,139 |
|
Income tax expense |
4,920 |
(14,708) |
|
Net income |
$19,953 |
$ 29,847 |
|
Consolidated |
||
|
Dollars in millions except per share amounts, December 31 |
2018 |
2017 |
|
Current liabilities |
||
|
Debt maturing within one year |
$10,255 |
$38,374 |
|
Accounts payable and accrued liabilities |
43,184 |
34,470 |
|
Advanced billed and customer deposits |
5,948 |
4,213 |
|
Accrued taxes |
1,179 |
1,262 |
|
Dividends payable |
3,854 |
3,070 |
|
Total current liabilities |
64,420 |
81,389 |
|
Long-term debt |
166,250 |
125,972 |
|
Deferred credits and other noncurrent liabilities: |
||
|
|
57,859 |
43,207 |
|
Post employment benefit obligation |
19,218 |
31,775 |
|
Other noncurrent liabilities |
30,233 |
19,747 |
|
Total deferred credits and other noncurrent liabilities |
107,310 |
94,729 |
|
|
||
|
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2018 and 2017; issued 7,620,748,598 at December 31, 2018 and 6,495,231,088 at December 31, 2017) |
7,621 |
6,495 |
|
Additional paid-in capital |
125,525 |
89,563 |
|
|
58,753 |
50,500 |
|
|
(12,059) |
(12,714) |
|
Accumulated other comprehensive income |
4,249 |
7,017 |
|
Noncontrolling interest |
9,795 |
1,146 |
|
Total stockholders' equity |
193,884 |
142,007 |
|
Total liabilities and stockholders' equity |
$531,864 |
$444,097 |
|
Consolidated Statements of Stockholders' Equity -- Excerpts |
2018 |
|
|
Amount in millions except per share amounts, December 31 |
Shares |
Amounts |
|
Common Stock |
||
|
Balance at beginning of year |
6,495 |
$ 6,495 |
|
Issuance of stock |
1,126 |
1,126 |
|
Balance at end of year |
7,621 |
$7,621 |
|
Additional Paid-In-Capital |
||
|
Balance at beginning of year |
$ 89,563 |
|
|
Issuance of common stock |
35,473 |
|
|
Issuance of treasury stock |
(115) |
|
|
Share-based payments |
604 |
|
|
Balance at end of year |
$125,525 |
|
|
Retained Earnings |
||
|
Balance at beginning of year |
$50,500 |
|
|
Net income attributable to AT&T ($2.85 per diluted share) |
19,370 |
|
|
Dividends to stockholders ($2.01 per share) |
(14,117) |
|
|
Cumulative effect of accounting changes and other adjustments |
3,000 |
|
|
Balance at end of year |
$ 58,753 |
|
|
Treasury stock |
||
|
Balance at beginning of year |
(356) |
$(12,714) |
|
Repurchase of common stock |
(20) |
(692) |
|
Issuance of treasury stock |
37 |
1,347 |
|
Balance at end of year |
(339) |
$(12,059) |
|
In mid 2019, Yahoo reports that AT&T has a market beta of: |
0.76 |
|
and that its closing stock price at the end of 2018 was: |
$28.54 |
|
AT&T's statutory tax rate is: |
21% |
Footnote 12 of AT&T’s 10-K reports that the market value of its debt is approximately $180.659 billion. Assume that the company’s after-tax cost of debt is 3.70%. Using this information, estimate AT&T’s weighted average cost of capital.
Round your computation for the intrinsic value of equity to the nearest million; then do not round until your final answer. Round final answer to one decimal place.
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