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5. Calculate the Weighted Average Cost of Capital (WACC)for McCormick and Company using the formula

WACC = WD RD (1-T) + WSrS and WD = Value of debt / Value of debt plus value of equity; WS = Value of Stock Equity/ Value of Debt Plus Value of Equity. For ease, the CFO says to use book value of Debt andthe market Value of Equity.On February 26, 2019 the market Value of Equity (or Market Cap) in Yahoo was $17.5 billion.Use the 2018 10-K Financial Statements filed January 25, 2019 and look on the Balance sheet to see the total of Short term borrowings, Current portion of long term debt and Long term debt.Use 4% for the cost of debt.Use 27.5% as the tax rate - a combination of federal and state income tax.

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WACC = 6.53%

Explanation:

The WACC is calculated as follows:

WACC = WD* RD (1-T) + WS*RS

WS = weight of equity, WD = weight of debt, RD = Cost of debt, RS = Cost of equity, t = tax rate,

Value of debt = 7074.2 million, Value of equity = 17.5 billion

Weight of equity = Value of equity / (value of equity + value of debt)

= 17,500,000,000 / (17,500,000,000 + 7,074,200,000)

= 0.7121

Weight of debt = 7,074,200,000 / (17,500,000,000 + 7,074,200,000)

= 0.2879

Cost of equity = Debt rate + Avg. risk premium

= 4% + ((3%+5%)/2)

= 8%

WACC = WD* RD (1-T) + WS*RS

= 0.2879 * 4% * (1-27.5%) + 0.7121 * 8%

= 0.0083491 + 0.056968

= 0.0653171 OR 6.53%