Question

Hi there,

I'm working on a project where we are required to find/calculate certain variables which will be used in various capital budgeting techniques. My company is AsusTek Inc., and I'm focusing on the ZenFone 5 as a potential project (so focusing only on smartphone market where we are assuming they have 3% market share). I need to find the following to assist in calculating the WACC using CAPM and DCF methods:

Cost of Debt (Kd)
Market Return (Km)
Capital Structure of ASUS (Debt, Preferred Stock, and Common Equity)

Please let me know how you come to get the values, as I've been looking at numbers on Yahoo Finance and the like and can't seem to figure them out. Thanks in Advance!

Answer 1

To find the cost of debt one has to look at the interest rate on the debt issued and then multiply the interest rate with (1-Tax rate) since interest is a tax deductible expense.

Market return is usually estimated from the historical rates and by looking at the S&P’s return historically you can get an estimate.

You will get the debt equity ratio for your company on Yahoo finance. It is the capital structure of the company. Suppose the debt equity ratio is given as 300 then it means the debt equity ratio is 300% or the ratio is 3:1. In such a case the capital structure of the company comprises of 75% debt and 25% equity.