Sherwin-Williams is considering acquiring Valspar and needs to determine the WACC to use in its DCF...

 

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Sherwin-Williams is considering acquiring Valspar and needs to determine the WACC to use in its DCF valuation model. Assume that Sherwin-Williams would use the CAPM to determine the cost of equity as well as the following capital market information: (In millions) Company Name Valspar Enterprise Value 3,000 Equity Value 2,250 Yields on U.S. Treasury Securities, December 2019 3-Month Treasury Bills 20-Year Treasury Bond 1.0% 3.0% Average Returns on Bonds & Stocks, 1926 to 2019 20-Year Treasury Bond 6.0% S&P 500 11.0% Sherwin-Williams Bonds, December 2019 Maturity Date Security August 1, 2025 Debentures Seniority Senior Total Debt 750 Coupon Rate 5.0% Beta Tax Rate 1.10 30% Offer Date Price 07/28/15 104.5 Yield to Maturity S&P Rating 4.0% A (Show all work on the paper exam.) [A] If they use 100% equity, determine the cost of equity and WACC they should use. (1.5 points) [B] If they use 50% debt and 50% equity, determine the cost of equity and WACC they should use. (2.5 points) Sherwin-Williams is considering acquiring Valspar and needs to determine the WACC to use in its DCF valuation model. Assume that Sherwin-Williams would use the CAPM to determine the cost of equity as well as the following capital market information: (In millions) Company Name Valspar Enterprise Value 3,000 Equity Value 2,250 Yields on U.S. Treasury Securities, December 2019 3-Month Treasury Bills 20-Year Treasury Bond 1.0% 3.0% Average Returns on Bonds & Stocks, 1926 to 2019 20-Year Treasury Bond 6.0% S&P 500 11.0% Sherwin-Williams Bonds, December 2019 Maturity Date Security August 1, 2025 Debentures Seniority Senior Total Debt 750 Coupon Rate 5.0% Beta Tax Rate 1.10 30% Offer Date Price 07/28/15 104.5 Yield to Maturity S&P Rating 4.0% A (Show all work on the paper exam.) [A] If they use 100% equity, determine the cost of equity and WACC they should use. (1.5 points) [B] If they use 50% debt and 50% equity, determine the cost of equity and WACC they should use. (2.5 points)

Answer rating: 100% (QA)

A To determine the cost of equity and WACC if SherwinWilliams uses 100 equity well first calculate t... View the full answer