Price of this assignmentMicrosoft Word - Guidelines for Heinz Case FIN 4596 Spring 2019 ...

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Price of this assignmentMicrosoft Word - Guidelines for Heinz Case FIN 4596 Spring 2019    Guidelines for cost of capital work in Heinz Case     Remember you are providing an analysis to Heinz insiders to help them make an informed  decision. Please consider addressing the following questions in your summary:    1.   How to estimate the WACC for Heinz at the start of fiscal year 2010? What was the  WACC one year earlier? As you do this, carefully note the points of judgment or  assumptions made in the calculation.  A small simple table/paragraph summarizing the  weights, cost of debt and cost of equity, and WACCs might be useful.     2.   What is your best estimate of the WACC for Kraft Foods, Campbell Soup Company,  and Del Monte Foods? Based on your findings, how do these comparable firms’ WACCs  influence your thinking about the WACC for Heinz?     The submission should be a two-page Executive Summary with 12 font and normal margins.  Remember to focus and to be as clear and concise as possible in describing the issue, the results,  and your opinion; the goal is to help senior managers make a more informed decision moving  forward.      Team Presentations (from now on all presentations will be graded)  Remember to lay out an agenda, introduce each member, have each member present, be prepared  to answer questions, and limit your presentation to 30 minutes. Remember to speak clearly and  loudly, make eye contact with your audience, do not read from note cards, and do not simply  read the slide, but communicate your points clearly to the audience.     Recall that the presentation style itself will not be graded; just the quality and veracity of the  content and preparation.  PRACTICE!!!

Mohammad Wasif · Accepted Answer

We are supposed to compute weighted average cost of capital as per the details given the case study. This information is for Heinz who is competing against Nestle, Kraft, Del Monte Foods, Campbell Soup Company. The study becomes more important because of the recession period going on since 2007. The Heinz analysts are therefore more concerned about the performance. They are concerned about following issues: 
1. Because of high fluctuation in stock prices from $47 to $34 and then to $47 during 2008 to 2010, whether WACC has to be revised? 
2. Effect of lower interest rates on WACC?
3. Whether the change in tolerance level or risk of market would have effect on WACC?
It is to be noted that the weighted average cost of capital is the measure that is analyzed by the investors before investing in any company. If the investors are expecting to earn more than the cost of capital, they will go long on the transaction. On the other hand, if the expectations of the investors are worse and therefore, they are not expecting to earn as desired, they will go short on the transaction. 
How to estimate the WACC for Heinz at the start of fiscal year 2010 and one year earlier?
The calculations can be referred from excel file attached. 
The same has been calculated using the following formula: 
(Cost of equity * Weight of equity)+ (Cost of debt * weight of debt)
Wherein Cost of equity may be computed using the CAPM (Capital Asset Pricing Model) as follows: 
Ke = Rf+ (Rm-Rf)*B
Ke = Cost of Equity
Rf = Risk free rate of return
Rm = Market rate of return
Rm-Rf = Market Risk Premium
Further, cost of debt may be computed using the debt yield after tax impact. 
Kd = I* (1-t)
Wherein 
Kd = Cost of debt 
I = Coupon Amount 
T = tax rate
Further, it is to be noted that equity component usage in the  operations is higher than the debt portion. This is practically relatable also as debt is considered to be burden on the company and therefore, investors consider the debt free company to be good for investment.  
How calculations have been done?

Microsoft Word - Guidelines for Heinz Case FIN 4596 Spring 2019 Guidelines for cost of capital work in Heinz Case Remember you are providing an analysis to Heinz insiders to help them make an informed...

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