Name:
Research Project 3
From the text, the Weighted Average Cost of Capital is:
WACC = (E/V) x RE + (D/V) x RD x (1- TC) (Eq. 14-6)
In this Research Project, the WACC for a selected company will be determined. Fill in the table
to identify your selected company:
Name of Company/Stock Hershey Company
Ticker Symbol HSY
Part 1: Cost of Debt1
Complete the following table to arrive at the Cost of Debt and Tax Rate.
Interest Income (Expense) – last 2 years avg (127+149)/2= $138,000,000
Earnings Before Tax – last 3 years total 1.797+1.495+1.381= $4,673,000,000
Taxation – last 3 years total 314+22+234= $570,000
Corporate Tax Rate, TC2570,000/4,673,000,000= 0.000121 or 0.012%
Current Debt 942,000,000
LT Debt & Leases 4,087,000,000
Total Debt 942+4087= $5,029,000,000
Cost of Debt3138,000,000/5,029,000,000=0.0274 or 2.74%
Part 2: Cost of Equity and CAPM Components
Complete the table and determine the cost of equity. Show your calculations.
Beta, βE0.45
Historical Market Return, iMAssume 9%
Risk Free Rate, ifAssume 2%
Cost of Equity, iE0.02+(0.45(0.09-0.02))=0.515 or 5.15%
iE=if+βE[E(iM)−if]
1 The inputs from Mergent provide a close approximation to the Cost of Debt
2 Divide the Taxation last 3 years line item by Earnings Before Tax for the last 3 years, as a percent
3 Interest Income (Expense) last 2-year average divided by the Total Debt
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