Identify and compare pre-offering EPS and total equity $ to the most current values for ExxonMobil. Compute the firm's current WACC assuming the total debt of the firm is in the issue that you analyzed. This means that if the company has more than one debt issue outstanding with a total face value of $X million and your chosen issue involves $Y million, then assume that all $X million is in your issue. This will simplify the calculations without diminishing learning value. Discuss at least three overall conclusions about this offering as a result of your research.

Data:

WACC

=

E

/

(E + D)

*

Cost of Equity

+

D

/

(E + D)

*

Cost of Debt

*

(1 - Tax Rate)

1. Weights: Generally speaking, a company's assets are financed by debt and equity. We need to calculate the weight of equity and the weight of debt. The market value of equity (E) is also called "Market Cap (M)". As of today, Exxon Mobil Corp's market capitalization (E) is $329257.270 Mil. The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding the latest two-year average Current Portion of Long-Term Debt and Long-Term Debt & Capital Lease Obligation together. As of Sep. 2018, Exxon Mobil Corp's latest two-year average Current Portion of Long-Term Debt was $15880 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligationwas $26669 Mil. The total Book Value of Debt (D) is $42549 Mil. a) weight of equity = E / (E + D) = 329257.270 / (329257.270 + 42549) = 0.8856 b) weight of debt = D / (E + D) = 42549 / (329257.270} + 42549) = 0.1144

2. Cost of Equity: GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula is: Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return) a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The current risk-free rate is 2.66000000%. Please go to Economic Indicators page for more information. b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. Exxon Mobil Corp's beta is 0.98. c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus requires market premium to be 6%. Cost of Equity = 2.66000000% + 0.98 * 6% = 8.54%

3. Cost of Debt: GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get the simplified cost of debt. As of Dec. 2017, Exxon Mobil Corp's interest expense (positive number) was $601 Mil. Its total Book Value of Debt (D) is $42549 Mil. Cost of Debt = 601 / 42549 = 1.4125%.

4. Multiply by one minus Average Tax Rate: GuruFocus uses the latest two-year average tax rate to do the calculation. The latest Two-year Average Tax Rate is-5.69%.

Exxon Mobil Corp's Weighted Average Cost Of Capital (WACC) for Today is calculated as:

WACC	=	E / (E + D)	*	Cost of Equity	+	D / (E + D)	*	Cost of Debt	*	(1 - Tax Rate)
	=	0.8856	*	8.54%	+	0.1144	*	1.4125%	*	(1 - -5.69%)
	=	7.73%

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company to raise the capital needed for that investment is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value as it grows.

As of today, Exxon Mobil Corp's weighted average cost of capital is 7.73%. Exxon Mobil Corp's ROIC % is 9.87% (calculated using TTM income statement data). Exxon Mobil Corp generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.