Determine The WACC For Kellogg Company And Data You

Question

Determine The Wacc For A Kellogg Company As Well As Data You Can Find Determine the WACC for a Kellogg Company as well as data you can find through research. Write a brief report in which you state your determination of WACC, describe and justify how you determined the number, and provide relevant information as to the sources of your data. Assume the Market Risk Premium is 4% unless you can develop a better number. rf is the risk free rate. The YTM on 10 year US Treasury securities is a good approximation. You may assume a corporate tax rate of 40%. The synopsis of Kellogg Company should include the following elements: 1. The calculated WACC. 2. How data was used to calculate WACC. This would be the formula and the formula with your values substituted. 3. Sources 4. A discussion of how much confidence in the answer. What were the limiting assumptions that you made, if any.

Dr. Jack HW Helper · Accepted Answer

Introduction The Weighted Average Cost of Capital (WACC) is a crucial financial metric used by firms and investors to evaluate the average cost of capital that a company incurs to finance its operations through equity and debt. For the Kellogg Company, a well-known player in the global cereal and snack food industry, determining an accurate WACC provides insight into its capital structure, risk profile, and investment viability. This report aims to calculate the WACC for Kellogg, utilizing publicly available financial data and empirical market information, before discussing the sources, the methodology, and the confidence level associated with the estimate. Calculation of WACC for Kellogg The general formula for WACC is as follows: $$ \text{WACC} = \left( \frac{E}{V} \times r_e \right) + \left( \frac{D}{V} \times r_d \times (1 - T) \right) $$ where: - $E$ = Market value of equity - $D$ = Market value of debt - $V = E + D$ = Total firm value - $r_e$ = Cost of equity - $r_d$ = Cost of debt (YTM of long-term bonds) - $T$ = Corporate tax rate Step 1: Gather Data - Risk-Free Rate ($r_f$): Based on the 10-year US Treasury yield, recent data indicates a rate of approximately 4.2% (Federal Reserve, 2023). - Market Risk Premium (MRP): Assumed at 4% due to standard estimates (Damodaran, 2023). - Cost of Equity ($r_e$): Calculated using the Capital Asset Pricing Model (CAPM): $$ r_e = r_f + \beta \times \text{MRP} $$ Kellogg's beta, as reported by Yahoo Finance (2023), is approximately 0.75. $$ r_e = 4.2\% + 0.75 \times 4\% = 4.2\% + 3\% = 7.2\% $$ - Cost of Debt ($r_d$): The YTM on Kellogg’s long-term bonds is estimated at approximately 3.8% based on recent bond yields (MarketWatch, 2023). - Debt and Equity Values: According to Kellogg’s latest financial statements (Q1 2023), the market values are approximated as follows: - Equity market capitalization: \$21 billion - Total debt: \$8 billion - Total firm value ($V$): \$29 billion - Tax Rate ($T$): Assume

Determine The WACC For Kellogg Company And Data You

Determine The Wacc For A Kellogg Company As Well As Data You Can Find

Paper For Above instruction

Introduction

Calculation of WACC for Kellogg

Sources of Data

Discussion of Confidence and Assumptions

Conclusion

References