Question

gather the required inputs to calculate their current WACC percentage. (Use 3.05% as the current risk-free rate of return and 7.50% as the expected market rate of return). Show all of your work to receive full credit.

Johnson & Johnson (JNJ)				$121.34
At close: June 29 4:01PM EDT
Income Statement
All numbers in thousands
Revenue	12/31/2017	1/1/2017	1/3/2016
Total Revenue	76,450,000	71,890,000	70,074,000
Cost of Revenue	25,354,000	21,685,000	21,536,000
Gross Profit	51,096,000	50,205,000	8,538,000
Operating Expenses
Research Development	10,554,000	9,095,000	9,046,000
Selling General and Administrative	21,420,000	19,945,000	21,203,000
Non Recurring	717,000	520,000	733,000
Operating Income or Loss	18,405,000	20,645,000	17,556,000
Income from Continuing Operations
Total Other Income/Expenses Net	202,000	-116,000	2,192,000
Earnings Before Interest and Taxes	18,607,000	20,529,000	19,748,000
Interest Expense	934,000	726,000	552,000
Income Before Tax	17,673,000	19,803,000	19,196,000
Income Tax Expense	16,373,000	3,263,000	3,787,000
Net Income	1,300,000	16,540,000	5,409,000
Johnson & Johnson (JNJ)				$121.34
At close: June 29 4:01PM EDT
Balance Sheet
All numbers in thousands
Period Ending	12/31/2017	1/1/2017		1/3/2016
Current Assets
Cash And Cash Equivalents	17,824,000		18,972,000		13,732,000
Short Term Investments	472,000		22,935,000		24,644,000
Net Receivables	13,490,000		11,699,000		10,734,000
Inventory	8,765,000		8,144,000		8,053,000
Other Current Assets	2,537,000		3,282,000		3,047,000
Total Current Assets	43,088,000		65,032,000		60,210,000
Long Term Investments	-		-		-
Property Plant and Equipment	17,005,000		15,912,000		15,905,000
Goodwill	31,906,000		22,805,000		21,629,000
Intangible Assets	53,228,000		26,876,000		25,764,000
Other Assets	4,971,000		4,435,000		4,413,000
Deferred Long Term Asset Charges	7,105,000		6,148,000		5,490,000
Total Assets	57,303,000		41,208,000		33,411,000
Current Liabilities
Accounts Payable	26,631,000		21,603,000		20,743,000
Short/Current Long Term Debt	3,906,000		4,684,000		7,004,000
Total Current Liabilities	30,537,000		26,287,000		27,747,000
Long Term Debt	30,675,000		22,442,000		12,857,000
Other Liabilities	27,563,000		19,151,000		19,095,000
Deferred Long Term Liability Charges	8,368,000		2,910,000		2,562,000
Total Liabilities	97,143,000		70,790,000		62,261,000
Stockholders' Equity
Preferred Stock	-		-		-
Common Stock	3,120,000		3,120,000		3,120,000
Retained Earnings	101,793,000		110,551,000		103,879,000
Treasury Stock	-31,554,000		-28,352,000		-22,684,000
Other Stockholder Equity	-13,199,000		-14,901,000		-13,165,000
Total Stockholder Equity	60,160,000		70,418,000		71,150,000
Net Tangible Assets	-24,974,000		20,737,000		23,757,000

Answer 1

1. cost of debt (K_d) in lakhs

interest long debt interest/ long debt

1/3/16 5.52 128.57 4.29%

1/1/17 7.26 224.42 3.23%

31/12/17 9.34 306.75 3.04%

average cost of debt (K_d) = (4.29+3.23+3.04) / 3 = 3.52%

2.

cost of equity (Ke) in lakhs

net income equity net income / equity

1/3/16 54.09 711.5 7.6%

1/1/17 165.04 704.18 23.43%

31/12/17 13 601.6 2.17%

average cost of equity (Ke) = (7.6 + 23.43 + 2.17) / 3 = 11.06%

3.

longterm debt equity total wt.debt wt.equity

3/1/16 128.57 711.55 840.12 0.1806 0.8193

1/1/17 224.42 704.18 928.6 0.2416 0.758  

31/12/17 306.75 711.5 1018.25 0.30 0.70

average weights = 0.24 0.76

WACC = K_d * wt.debt + K_e * wt.equity = 0.24*3.52% + 0.76*11.06% = 9.25%

note:-

for determining WACC Rf and Rm irrelevant and sum can be done in other way i.e. for each year WACC to be determined and then average of 3years WACC can also be taken where the answer differs.