1. As of today, McCormick's market capitalization (E) is $14,237,510,000. Market value of equity (E), also known as market cap, is calculated using the following equation: market cap = share price x shares outstanding.
2. McCormick's book value of debt is $3,237,150,000. Book value of debt (D) is calculated as follows: book value of debt = last two-year average of current portion of long-term debt + last two-year average of long-term debt & capital lease obligation.
3. Cost of Equity = risk-free rate of return + beta of asset x (expected return of the market - risk-free rate of return)
Risk-free rate of return = 2.82 percent.
Beta = 0.30.
Market premium = (expected return of the market - risk-free rate of return) = 6 percent
4. Cost of debt = last fiscal year-end interest expense / book value of debt (D). McCormick's last fiscal year end interest expense is $95.7 million.
5. Use the effective tax rate of 25.705 percent.
QUESTION 5=Find the weighted average cost of capital (WACC)?
First of all lets calculate cost of equity
cost of equity = Risk free rate of return + beta(Market premium)
Cost of debt = Interest rate(1-tax rate)
=(Interest/Book value of debt) (1-0.25705)
Statement showing WACC
|Source of capital||Capital||Weight||K||WACC=Weight*k|
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