Question: Please note : The selected firm is P&G (Procter & Gamble Co.) Income statement, Balance sheet, Cash flow, Historical data and are all attached here
Please note: The selected firm is P&G (Procter & Gamble Co.)
Income statement, Balance sheet, Cash flow, Historical data and are all attached here with questions.
(1) Estimate Capital Structure
- Estimate the firm's weights of debt, preferred stock, and common stock using the firm's balance sheet (book value).
- Estimate the firm's weights of debt, preferred stock, and common stock using the market value of each capital component.
(2) Compute Weighted Average Cost of Capital (WACC)
- Estimate the firm's before-tax and after-tax component cost of debt; (Note: If the information about the current corporate tax rate is not available, you need to estimate the tax rate based on the historical tax payments).
- Estimate the firm's component cost of preferred stock if the firm has issued preferred stocks.
- Use three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the component cost of common equity for the firm.
- Calculate the firm's weighted average cost of capital (WACC) using the market-based capital structure weights.
(3) Capital Budgeting Analysis
-Using the WACC obtained from in Step (2) as the discount rate for this project, apply capital budgeting analysis techniques (NPV, IRR, MIRR, PI, Payback, Discounted Payback) to analyze the new project.
- Perform asensitivity analysisfor the effects of key variables (e.g., sales growth rate, cost of capital, unit costs, sales price) on the estimated NPV or IRR in order to demonstrate the sensitivity of the model.
- Discuss whether the project should be taken and summarize your report.
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