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Introduction
• DCF models using accounting statements to calculate free cash flows
• The Gordon model –cost of equity based on dividends
• The Capital Asset Pricing Model
• The cost of debt
• WACC
• RADR
Capital Asset Pricing Model
• Calculating beta of stock returns
• 125 monthly returns for SP500 and stock A
• Regression analysis
• Beta using variance/covariance matrix
WACC (p.73)COMPUTING THE WACC FOR KRAFT
Shares outstanding 1,669,880,755Share price, end 2005 27.75Equity value, E 46,339,190,951Net debt, D 10,884,000,000
WACC based on Gordon per-share dividends and interest from financial statementsCost of equity, rE 16.79% <-- ='Page 71'!B6Cost of debt, rD 5.50% <-- ='Page 67'!B13Tax rate, TC 29.37% <-- ='Kraft 10K, 2005'!B160WACC 14.33% <-- =$B$4/($B$4+$B$5)*B8+$B$5/($B$4+$B$5)*B9*(1-$B$10)
WACC based on Gordon equity payouts and interest from financial statementsCost of equity, rE 14.46% <-- ='Page 72, top'!B11Cost of debt, rD 5.50% <-- ='Page 67'!B13Tax rate, TC 29.37% <-- ='Kraft 10K, 2005'!B160
WACC 12.45%<-- =$B$4/($B$4+$B$5)*B14+$B$5/($B$4+$B$5)*B15*(1-$B$10)
WACC based on classic CAPM and interest from financial statementsCost of equity, rE 6.82% <-- ='Page 72, bottom'!B12Cost of debt, rD 5.50% <-- ='Page 67'!B13Tax rate, TC 29.37% <-- ='Kraft 10K, 2005'!B160
WACC 6.26%<-- =$B$4/($B$4+$B$5)*B20+$B$5/($B$4+$B$5)*B21*(1-$B$10)
WACC based on tax-adjusted CAPM and interest from financial statementsCost of equity, rE 6.05% <-- ='Page 72, bottom'!B13Cost of debt, rD 5.50% <-- ='Page 67'!B13Tax rate, TC 29.37% <-- ='Kraft 10K, 2005'!B160
WACC 5.64%<-- =$B$4/($B$4+$B$5)*B26+$B$5/($B$4+$B$5)*B27*(1-$B$10)