In this Disney Case we calculate Disney’s WACC and compare it to the WACCs for companies that operate in one of Disney’s four primary segments (parks and resorts, studio entertainment, broadcasting and media, and consumer products). The case concludes by changing the external and internal environment in which Disney’s operates to see how the changes impact the company’s WACC.

1. What is Disney’s weighted average cost of capital (WACC)?

2. Using the accompanying spreadsheet, calculate the WACC for each Disney segment comparable. Describe the primary WACC drivers that explain the differences between the WACC of Disney and its comparable.

3. How may Disney’s WACC be impacted by stated changes in its operating environment. Consider the following scenarios:

1). an increase in the Federal Reserve reference rate;

2). a two notch downgrade in Disney’s credit rating;

3). adding debt to Disney’s capital structure for an acquisition;

4). a downturn in the US equity market; and,

5). an increase in Disney’s marginal income tax rate?

Cost of Capital Components		Capital Structure	$ in Millions
Beta	0.95	Equity	157,215
The expected return of the market	10.36%	Preferred equity	0
Risk-free rate	3.14%	Short term debt	5,992
Tax Rate	12.02%	Long-term debt	17,681
The pre-Tax cost of debt	3.07%	Total capital	180,888

Answer rating: 100% (QA)

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