I would like to compare what I did from this homework:

Accounting and Managerial Finance ? Case Study

Henkel Integrative Case: Part IV Cost of Capital Introduction To value a company using enterprise discounted cash flow (DCF), we discount free cash flow by the weighted average cost of capital (WACC). The weighted average cost of capital represents the opportunity cost that investors face for investing their funds in one particular business instead of others with similar risk. To determine the weighted average cost of capital, calculate its three components: the cost of equity, the after-tax cost of debt, and the company?s target capital structure. Since none of the variables is directly observable, we employ various models, assumptions, and approximations to estimate each component.

Instructions The cost of equity is built on the three factors: the risk-free rate, the market risk premium, and a company-specific risk adjustment. The most commonly used model for this estimate is the capital asset pricing model (CAPM). To determine the CAPM, we need to estimate a risk-free rate, the market risk premium, and the market beta.

1. To determine the risk-free rate, please use Treasury data from the ?Select Market Data? spreadsheet. On the ?Yields? tab, you will find yields to maturities for U.S. and German Treasury rates. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the company?
2. TodetermineHenkel?scorporatebeta,unlever(andrelever)theordinaryleastsquares(OLS)marketbetasforeachcompanyintheEuropeanHouseholdandPersonalCaresegment.Pricescanbefoundonthe?Prices?tabofthe?SelectMarketData?spreadsheet.TodeterminetheOLSmarketbeta,regress10-yearmonthlyreturnsagainsttheMSCIWorldindexdenominatedinthesamecurrency.InExcel,thiscanbedoneusingthe?SLOPE?formula.Next,unleverthemarketbetausingeachcompany?syear-enddebt-to-equityratioandtheformula:bu=be/(1+D/E).TodetermineHenkel?scorporatebeta,relevertheaverageindustrybetausingHenkel?syear-enddebt-to-equityratio.RepeatthisprocessforeachofHenkel?sdivisions.

Question 2

Henkel does not carry debt beyond five years. To determine the cost of debt:

1. For Henkel AG, which Treasury rate at which maturity is most appropriate to use in valuing the cost of debt of the company?
2. Determine Henkel?s marginal tax rate, use the tax reconciliation table in the annual report. Set the marginal tax rate equal to the ?Tax rate on income.?

Henkel Integrative Case European Household and Personal Care, 2009 Ticker BEI-FF GIVN-VX HEN-FF OR-FR ORI-SK RB.-LN SCA'B-SK ULVR-LN Company Beiersdorf Givaudan SA Henkel AG L'Oreal SA Oriflame Cosmetics Reckitt Benckiser Svenska Cellulosa AB Unilever plc Year 2009 FYE 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 Currency EUR CHF EUR EUR EUR GBP SEK GBP Revenues (in euros) 5,748.0 2,669.4 13,573.0 17,472.6 1,316.6 8,726.4 10,821.7 39,785.8 Revenues 5,748.0 3,959.0 13,573.0 17,472.6 1,316.6 7,753.0 110,857.0 35,347.7 Cost of sales 1,892.0 2,355.0 7,293.0 5,090.8 450.8 3,115.0 68,844.0 18,416.3 SG&A 3,250.0 1,084.0 5,025.0 9,716.2 778.1 2,699.0 36,381.0 11,705.0 Amortization 24.0 176.0 108.0 - 2.7 8.0 306.0 149.1 Operating profit (EBITA) 630.0 696.0 1,363.0 2,665.6 90.4 1,947.0 5,938.0 5,375.4 Accounts Inventory receivable 561.0 947.0 633.0 831.0 1,236.0 2,115.0 1,476.7 2,826.8 221.3 72.1 486.0 896.0 11,459.0 18,447.0 3,173.0 2,775.7 Accrued payroll - 92.0 67.0 - - - 2,236.0 - Accounts payable 699.0 322.0 1,885.0 2,603.1 45.2 790.0 12,277.0 3,531.3 PP&E 725.0 1,437.0 2,248.0 2,599.0 134.1 639.0 86,801.0 5,920.4 FYE 12/31/09 12/31/09 12/31/09 06/30/09 06/30/09 06/30/09 09/30/09 12/31/09 06/30/09 Currency USD USD USD USD USD USD USD USD USD Revenues (in euros) 7,168.5 1,757.1 10,683.0 3,885.6 763.0 5,227.3 2,736.4 13,323.2 56,343.8 Revenues 10,284.7 2,520.9 15,327.0 5,450.0 1,070.2 7,331.9 3,999.8 19,115.0 79,029.0 Cost of sales 3,881.6 1,420.4 6,303.0 3,111.0 659.7 1,888.4 2,141.2 12,603.0 38,723.0 SG&A 5,311.6 709.0 5,360.0 1,328.0 400.3 4,902.5 1,212.8 3,300.0 23,957.0 Amortization 47.7 28.4 22.0 17.0 9.8 13.8 19.4 18.0 648.0 Operating profit (EBITA) 1,139.2 419.9 3,686.0 1,028.0 20.0 554.8 665.2 3,230.0 16,997.0 Accounts Inventory receivable 1,067.5 923.0 216.9 222.8 1,209.0 1,626.0 366.0 492.0 318.5 190.3 795.0 853.3 667.3 864.3 2,033.0 2,566.0 6,880.0 5,836.0 Accrued payroll 291.0 65.4 431.0 123.0 - 280.8 92.3 411.0 1,464.0 Accounts payable 746.7 177.8 1,172.0 381.0 191.2 329.8 231.6 1,920.0 5,980.0 PP&E 1,529.6 455.6 3,516.0 955.0 64.1 1,026.7 863.4 8,033.0 19,462.0 Henkel Integrative Case U.S. Household and Personal Care Ticker AVP-N CHD-N CL-N CLX-N RDEN-O EL-N ENR-N KMB-N PG-N Company Avon Products Inc. Church & Dwight Co. Colgate-Palmolive Co. Clorox Company (The) Elizabeth Arden Estee Lauder Co. Energizer Holdings Kimberly-Clark Corp. Procter & Gamble Co. Source: JPMorgan, Worldscope, Thomson Financial. Henkel Integrative Case Capital structure, 2009 Debt and debt equivalents Ticker BEI-FF GIVN-VX HEN-FF OR-FR ORI-SK RB.-LN SCA'B-SK ULVR-LN Company name Beiersdorf Givaudan SA Henkel AG L'Oreal SA Oriflame Cosmetics Reckitt Benckiser Svenska Cellulosa AB Unilever plc FYE 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 12/31/09 Currency EUR CHF EUR EUR EUR GBP SEK GBP Total Unfunded Debt & debt1 155.0 3,073.0 4,179.0 3,131.3 262.3 136.0 43,979.0 8,721.0 retirements 81.0 282.0 844.0 1,015.5 - 200.0 3,411.0 2,289.8 equivalents 236.0 3,355.0 5,023.0 4,146.8 262.3 336.0 47,390.0 11,010.8 Market capitalization Cash (1,813.0) (892.0) (1,226.0) (1,238.5) (107.2) (356.0) (5,342.0) (3,205.0) Net Share debt (1,577.0) 2,463.0 3,797.0 2,908.3 155.1 (20.0) 42,048.0 7,805.8 price2 46.2 826.5 31.0 78.0 428.5 33.6 95.5 19.9 Shares Market outstanding capitalization 226.8 10,470.0 9.1 7,516.6 433.7 13,445.2 586.2 45,720.2 57.0 24,416.0 725.5 24,348.6 702.3 67,038.6 2,815.5 56,141.1 For Henkel AG, total debt includes current financial liabilities, excluding operating sundry items. 1 Henkel Integrative Case Segment comparables Debt and debt equivalents Market capitalization FYE Currency Total debt Unfunded retirements Debt & equivalents Cash Net debt Share price CLX-N PG-N ULVR-LN Company name Laundry & Home Care Clorox Company (The) Procter & Gamble Co. Unilever plc 06/30/09 06/30/09 12/31/09 USD USD GBP 3,149.0 36,972.0 8,721.0 263.0 5,240.0 2,289.8 3,412.0 42,212.0 11,010.8 (206.0) (4,781.0) (3,205.0) 3,206.0 37,431.0 7,805.8 61.0 60.6 19.9 139.4 2,799.2 2,815.5 8,506.0 169,715.1 56,141.1 BEI-FF CL-N EL-N Cosmetics & Toiletries Beiersdorf AG Colgate-Palmolive Co. Estee Lauder Co. 12/31/09 12/31/09 06/30/09 EUR USD USD 155.0 3,182.0 1,421.4 81.0 1,283.0 286.2 236.0 4,465.0 1,707.6 (1,813.0) (740.0) (881.2) (1,577.0) 3,725.0 826.4 46.2 82.2 48.4 226.8 482.7 195.8 10,470.0 39,652.5 9,467.9 MMM-N AVY-N FUL-N Adhesives 3M Company Avery Dennison Corp. Fuller (H B) Co. 12/31/09 01/02/10 11/28/09 USD USD USD 5,830.0 1,624.3 212.7 2,190.0 326.6 73.4 8,020.0 1,950.9 286.1 (3,809.0) (143.6) (100.2) 4,211.0 1,807.3 186.0 82.7 36.5 22.8 714.9 109.4 49.0 59,097.4 3,992.6 1,114.3 Ticker Source: Worldscope, Thomson Financial. For Henkel AG, total debt includes current financial liabilities, excluding operating sundry items. as of fiscal year-end 2009, except share price, which was measured on December 31, 2009. 1 2Data Shares Market outstanding capitalization 0.130171 3.761211 4.097064 3.348244 2.446466 0.94382 8.871209 3.435529 Henkel Integrative Case Adjusted stock prices (adjusted for dividends and splits) Date ### ### ### 9/30/2009 8/31/2009 7/31/2009 6/30/2009 5/29/2009 4/30/2009 3/31/2009 2/27/2009 1/30/2009 ### ### ### 9/30/2008 8/29/2008 7/31/2008 6/30/2008 5/30/2008 4/30/2008 3/31/2008 2/29/2008 1/31/2008 ### ### ### 9/28/2007 8/31/2007 7/31/2007 6/29/2007 5/31/2007 4/30/2007 3/30/2007 2/28/2007 1/31/2007 ### ### ### 9/29/2006 EUR BEI-FF 46.2 43.5 41.6 40.1 35.5 35.3 33.5 34.7 30.1 32.8 32.1 37.3 41.0 42.3 41.2 43.7 38.6 40.5 45.5 49.0 52.6 51.0 50.8 49.5 50.7 52.7 52.4 50.2 47.4 49.1 50.6 51.2 50.8 48.5 46.3 48.7 46.7 42.3 42.2 39.6 CHF GIVN-VX 826.5 795.0 762.0 777.0 761.0 714.5 665.5 671.2 697.6 549.7 630.2 733.6 773.7 740.2 735.1 866.9 855.2 797.9 850.6 940.9 980.1 915.3 958.3 968.3 996.6 993.0 1,039.5 982.9 996.6 1,035.9 1,105.3 1,064.2 1,038.6 1,010.1 974.2 1,008.3 1,013.7 964.3 925.6 899.6 EUR HEN-FF 31.0 28.7 26.7 24.8 23.3 22.0 19.2 19.1 18.7 18.4 16.5 17.8 18.5 18.7 18.7 21.1 23.2 23.9 23.1 28.1 25.1 25.6 25.6 26.8 33.3 32.9 30.4 31.6 32.9 34.3 33.7 33.4 32.7 31.5 29.9 33.2 30.8 29.6 29.4 30.3 Laundry EUR OR-FR 78.0 72.3 69.7 67.9 68.7 60.8 53.3 55.8 54.2 50.4 49.9 50.7 60.6 61.9 57.4 67.3 66.0 65.5 67.2 76.0 74.1 76.8 75.1 78.7 93.5 90.6 86.5 87.8 82.1 80.6 83.8 84.3 83.0 77.0 74.5 76.4 71.5 71.7 71.8 75.4 EUR ORI-SK 428.5 411.0 400.0 357.0 346.0 358.0 335.5 334.5 337.4 247.0 208.6 190.8 216.8 211.9 229.7 305.2 359.5 378.7 372.5 409.5 429.0 368.7 387.0 324.3 386.0 363.1 358.9 365.4 353.3 322.0 301.4 338.3 322.5 244.7 246.1 255.2 256.6 234.7 237.5 221.1 GBP RB.-LN 3,356.0 3,100.0 3,035.0 3,058.0 2,853.0 2,831.9 2,723.6 2,637.9 2,626.1 2,578.8 2,652.7 2,586.7 2,492.9 2,669.8 2,523.8 2,621.5 2,687.2 2,640.6 2,433.1 2,843.2 2,808.8 2,668.3 2,610.0 2,478.0 2,756.1 2,733.4 2,637.9 2,716.4 2,552.8 2,485.6 2,563.4 2,573.7 2,578.4 2,479.9 2,403.1 2,273.1 2,166.4 2,099.6 2,117.2 2,055.0 SEK SCA'B-SK 95.5 96.0 99.0 94.5 92.8 92.8 81.0 87.3 78.5 59.4 55.8 62.2 63.4 62.0 53.9 68.7 69.8 65.6 81.0 91.5 96.0 98.8 93.1 92.7 104.6 104.1 102.3 109.8 109.1 109.8 105.0 109.3 105.8 113.8 107.1 109.6 105.4 98.9 97.8 99.1 GBP ULVR-LN 1,994.0 1,784.0 1,804.7 1,754.4 1,657.7 1,559.0 1,405.1 1,430.7 1,274.1 1,266.4 1,314.4 1,470.1 1,517.2 1,434.5 1,322.9 1,442.3 1,399.7 1,315.3 1,354.2 1,583.5 1,579.9 1,577.1 1,481.5 1,534.4 1,754.4 1,656.0 1,493.4 1,419.8 1,436.4 1,424.4 1,484.2 1,432.7 1,419.1 1,378.6 1,225.5 1,246.2 1,285.8 1,227.3 1,144.0 1,158.0 USD CLX-N 61.0 60.3 59.2 58.3 58.6 60.5 54.9 51.6 55.1 50.2 47.4 48.9 53.7 57.2 58.7 60.1 56.6 52.2 49.6 54.3 50.3 53.4 54.9 57.8 61.0 60.8 58.6 56.8 55.7 56.3 57.4 62.1 62.0 58.6 58.4 60.2 58.8 58.6 59.2 57.5 USD PG-N 60.6 62.3 58.0 57.5 53.7 55.1 50.3 51.1 48.7 46.0 47.0 53.2 59.9 62.4 62.5 67.1 67.2 63.0 58.2 63.2 64.1 66.6 62.9 62.2 69.5 70.0 65.8 66.2 61.5 58.2 57.3 59.5 60.3 58.8 59.1 60.4 59.6 58.2 58.8 57.2 Cosmetics GBP ULVR-LN 1,994.0 1,784.0 1,804.7 1,754.4 1,657.7 1,559.0 1,405.1 1,430.7 1,274.1 1,266.4 1,314.4 1,470.1 1,517.2 1,434.5 1,322.9 1,442.3 1,399.7 1,315.3 1,354.2 1,583.5 1,579.9 1,577.1 1,481.5 1,534.4 1,754.4 1,656.0 1,493.4 1,419.8 1,436.4 1,424.4 1,484.2 1,432.7 1,419.1 1,378.6 1,225.5 1,246.2 1,285.8 1,227.3 1,144.0 1,158.0 EUR BEI-FF 46.2 43.5 41.6 40.1 35.5 35.3 33.5 34.7 30.1 32.8 32.1 37.3 41.0 42.3 41.2 43.7 38.6 40.5 45.5 49.0 52.6 51.0 50.8 49.5 50.7 52.7 52.4 50.2 47.4 49.1 50.6 51.2 50.8 48.5 46.3 48.7 46.7 42.3 42.2 39.6 Henkel Integrative Case MSCI World Index Date ### ### ### 9/30/2009 8/31/2009 7/31/2009 6/30/2009 5/29/2009 4/30/2009 3/31/2009 2/27/2009 1/30/2009 ### ### ### 9/30/2008 8/29/2008 7/31/2008 6/30/2008 5/30/2008 4/30/2008 3/31/2008 2/29/2008 1/31/2008 ### ### ### 9/28/2007 8/31/2007 7/31/2007 6/29/2007 5/31/2007 4/30/2007 3/30/2007 2/28/2007 1/31/2007 ### ### ### 9/29/2006 MSCI CHF MSCI EUR MSCI GBP MSCI SEK MSCI USD 1,207.9 1,152.4 1,128.6 1,163.8 1,139.6 1,114.0 1,037.6 1,021.6 999.3 896.1 853.3 946.4 950.9 1,050.9 1,079.7 1,278.6 1,420.8 1,374.3 1,368.9 1,525.2 1,495.8 1,348.5 1,436.1 1,500.1 1,695.1 1,712.1 1,831.6 1,790.8 1,767.6 1,761.0 1,833.7 1,847.1 1,767.6 1,711.7 1,680.8 1,725.6 1,668.1 1,604.1 1,624.8 1,579.8 814.4 764.3 746.8 767.3 751.4 730.1 680.2 676.8 662.1 593.6 576.7 636.3 642.7 681.8 729.0 811.8 878.6 840.5 853.0 939.4 922.4 860.4 906.3 934.2 1,024.1 1,033.1 1,092.3 1,077.9 1,073.1 1,069.0 1,107.8 1,120.2 1,073.3 1,053.3 1,041.9 1,064.3 1,036.4 1,010.2 1,023.5 994.5 723.6 699.2 668.5 701.3 661.6 624.4 579.3 594.1 592.1 549.9 513.9 565.6 621.4 563.8 572.1 639.7 709.2 662.0 675.3 738.7 725.1 686.0 691.7 695.8 752.2 737.5 760.7 752.4 725.3 720.1 745.7 762.0 732.4 714.9 702.3 706.5 698.2 680.7 684.9 674.4 8,342.9 8,020.1 7,771.7 7,843.3 7,656.4 7,541.1 7,391.6 7,261.3 7,066.5 6,515.7 6,589.1 6,763.6 7,064.8 7,007.2 7,204.9 7,950.8 8,307.7 7,936.1 8,083.9 8,766.0 8,607.8 8,084.6 8,488.9 8,851.5 9,677.3 9,687.5 10,052.4 9,916.7 10,076.1 9,859.9 10,259.6 10,419.0 9,826.4 9,837.5 9,657.2 9,635.9 9,351.4 9,160.4 9,433.4 9,232.7 1,168.5 1,147.5 1,101.9 1,121.6 1,078.3 1,035.1 954.0 957.9 877.3 788.1 732.5 815.4 893.4 865.2 924.4 1,140.3 1,293.6 1,311.4 1,343.9 1,459.8 1,436.1 1,363.4 1,375.9 1,383.2 1,497.3 1,516.4 1,580.3 1,532.9 1,462.9 1,463.4 1,496.2 1,507.3 1,464.8 1,402.1 1,376.3 1,383.0 1,366.6 1,339.0 1,306.3 1,259.8 MSCI CHF 1 4.8% 2.1% -3.0% 2.1% 2.3% 7.4% 1.6% 2.2% 11.5% 5.0% -9.8% -0.5% -9.5% -2.7% -15.6% -10.0% 3.4% 0.4% -10.2% 2.0% 10.9% -6.1% -4.3% -11.5% -1.0% -6.5% 2.3% 1.3% 0.4% -4.0% -0.7% 4.5% 3.3% 1.8% -2.6% 3.4% 4.0% -1.3% 2.9% 2.9% MSCI EUR 2 6.6% 2.3% -2.7% 2.1% 2.9% 7.3% 0.5% 2.2% 11.5% 2.9% -9.4% -1.0% -5.7% -6.5% -10.2% -7.6% 4.5% -1.5% -9.2% 1.8% 7.2% -5.1% -3.0% -8.8% -0.9% -5.4% 1.3% 0.4% 0.4% -3.5% -1.1% 4.4% 1.9% 1.1% -2.1% 2.7% 2.6% -1.3% 2.9% 2.3% MSCI GBP 3 3.5% 4.6% -4.7% 6.0% 6.0% 7.8% -2.5% 0.3% 7.7% 7.0% -9.1% -9.0% 10.2% -1.4% -10.6% -9.8% 7.1% -2.0% -8.6% 1.9% 5.7% -0.8% -0.6% -7.5% 2.0% -3.1% 1.1% 3.7% 0.7% -3.4% -2.1% 4.0% 2.5% 1.8% -0.6% 1.2% 2.6% -0.6% 1.6% 3.1% MSCI SEK 4 4.0% 3.2% -0.9% 2.4% 1.5% 2.0% 1.8% 2.8% 8.5% -1.1% -2.6% -4.3% 0.8% -2.7% -9.4% -4.3% 4.7% -1.8% -7.8% 1.8% 6.5% -4.8% -4.1% -8.5% -0.1% -3.6% 1.4% -1.6% 2.2% -3.9% -1.5% 6.0% -0.1% 1.9% 0.2% 3.0% 2.1% -2.9% 2.2% 2.6% MSCI USD 5 1.8% 4.1% -1.8% 4.0% 4.2% 8.5% -0.4% 9.2% 11.3% 7.6% -10.2% -8.7% 3.3% -6.4% -18.9% -11.9% -1.4% -2.4% -7.9% 1.6% 5.3% -0.9% -0.5% -7.6% -1.3% -4.0% 3.1% 4.8% - -2.2% -0.7% 2.9% 4.5% 1.9% -0.5% 1.2% 2.1% 2.5% 3.7% 1.2% Yields by Corporate Default Rating Bloomberg, December 2009 U.S. Dollar-Denominated Bonds Rating Euro-Denominated Bonds 1Y 2Y 5Y 10Y 20Y Rating Treasury1 0.49 1.15 2.71 3.92 4.61 AAA AA A+ A A- BBB+ BBB BBB- BB+ BB BBB+ B B- 0.56 0.97 0.99 1.05 1.39 2.06 2.07 2.77 4.04 4.06 4.32 4.56 5.40 5.91 1.29 1.63 1.65 1.71 1.97 2.66 2.68 3.51 4.86 4.88 5.19 5.40 6.31 6.80 3.00 3.47 3.49 3.61 3.81 4.49 4.49 5.46 6.44 6.46 6.76 7.16 8.11 8.60 4.51 4.83 4.85 4.97 5.23 5.57 5.59 6.51 7.51 7.54 7.83 8.23 9.21 9.69 5.25 5.60 5.62 5.71 5.97 6.23 6.27 7.11 8.08 8.09 8.35 8.72 9.74 10.22 U.S. Treasury. German Treasury. 1 2 1Y 2Y 5Y 10Y 20Y Treasury2 0.85 1.38 2.53 3.38 4.23 AA+/AA AA- A BBB+ BBB BBB- BB 1.34 1.47 1.52 1.60 1.86 2.00 3.42 1.87 1.94 2.06 2.30 2.67 2.83 4.36 3.12 3.31 3.46 3.67 4.09 4.32 6.43 4.13 4.49 4.52 4.74 5.08 5.58 8.03 n/a 4.5 4 3.5 n/a 3 5.01 5.46 2.5 n/a 2 n/a n/a 1.5 1 0.5 1 2 5 10 20 0.85 1.38 2.53 3.38 4.23 0 0 5 10 15 20 25 Henkel Credit Ratings Rating actions Agency Moody's S&P S&P Fitch S&P S&P S&P Date Jul-09 May-09 Apr-07 Nov-05 Oct-04 Apr-04 Dec-03 Rating A3 A- A A- A- A- A+ S&P equivalent A- A- A A- A- A- A+ SYMBOL BEI-FF GIVN-VX HEN-FF OR-FR ORI-SK RB.-LN SCA'B-SK ULVR-LN NAME Beiersdorf Givaudan SA Henkel AG L'Oreal SA Oriflame Cosmetics Reckitt Benckiser Svenska Cellulosa AB Unilever plc Currency EUR CHF EUR EUR EUR GBP SEK GBP SLOPE 0.010474 0.041328 0.011993 0.039624 0.006322 3.290764 0.000947 1.07467 D/E Ratio 0.130171 3.761211 4.097064 3.348244 2.446466 0.94382 8.871209 3.435529