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For December 2019 10K 1. Most publicly traded corporations are required to submit quarterly (10Q) and...

For December 2019 10K

1. Most publicly traded corporations are required to submit quarterly (10Q) and annual reports (10K) to the SEC detailing the financial operations of the company over the past quarter or year, respectively. These corporate filings are available on the SEC website at www.sec.gov. Go to the SEC website, follow the “Search for Company Filings” link, and search for SEC filings made by Tesla Motors (TSLA). Find the most recent 10Q or 10K, and download the form. Look on the balance sheet to find the book value of debt and the book value of equity.

2.To estimate the cost of equity for TSLA, go to finance.yahoo.com and enter the ticker symbol TSLA. Follow the links to answer the following questions: What is the most recent stock price listed for TSLA? What is the market value of equity, or market capitalization? How many shares of stock does TSLA have outstanding? What is the most recent annual dividend? Can you use the dividend discount model in this case? What is the beta for TSLA? Now go back to finance.yahoo.com and follow the “Bonds” link. What is the yield on three-month Treasury bills? Using the historical market risk premium, what is the cost of equity for TSLA using CAPM?

3. You now need to calculate the cost of debt for TSLA. Go to finra-markets.morningstar.com, enter TSLA as the company, and find the yield to maturity for each of TSLA’s bonds. What is the weighted average cost of debt for TSLA using the book value weights and using the market value weights? Does it make a difference in this case if you use book value weights or market value weights?

4. You now have all the necessary information to calculate the weighted average cost of capital for TSLA. Calculate this using book value weights and market value weights, assuming TSLA has a 35 percent marginal tax rate. Which number is more relevant?

5. You used TSLA as a pure play company to estimate the cost of capital for SMI. Are there any potential problems with this approach in this situation?

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Homework Answers

Answer #1

Since, there are multiple parts to the question and each part has various subparts, I have answered the first two parts.

Part A)

Book Value of Debt (as on 30th June 2016) [in 000's] = $9,311,512

Book Value of Equity (as on 30th June 2016) [in 000's] = $2,520,294

Part B)

Most Recent Price for Listed for TSLA = $211.41

Market Value of Equity or Market Capitalization = $31.44 billion

Number of Shares Outstanding = 148.69 million shares

Most Recent Annual Dividend = No Dividend (the company has not paid any dividend during the last few years)

Can You Use the Dividend Discount Model in the Given Case = No, we cannot as the company has not paid any dividend during the last three years.

What is the Yield on Three Month Treasury Stock Bills = .27%

Cost of Capital (CAPM) = Risk Free Rate + BetaMarket Risk Premium = .27% + .887% = 6.43%

Thank You

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