“You don’t need to talk about the background or hirtory of Walmart” The Cost of Debt estimates: As discussed, there two methods you need to apply: A) Finding the current yield being offered on a similarly rated bond. B) Calculate the weighted average yield to maturity (YTM) for all the outstanding bond issues you have on your balance sheet. C) Obtain your average yield from these two approaches and then calculate your after-tax cost of debt by multiplying that yield by (1-T). 2. The Cost of Preferred Stock (if you your firm has any preferred stock): Please consult your lecture notes for formula. 3. The Cost of Equity Capital: As discussed, there are two approaches to estimate your cost of equity capital: a) The CAPM approach in which you need to estimate: The risk-free rate approximated by the rate on 10-year US Government bonds. The market risk premium ranging between 5-8% (5 for a booming market and 8 for a recessionary market period). Beta estimate for your firm. Best if you generated that estimate, otherwise, you must consult at least three providers to obtain a good average estimate. b) The Dividends Growth Model, which you a very familiar with! PS. If your firm pays dividends, you must apply both methods to estimate your cost of equity capital, if not, then focus on the CAPM approach. The Weighted Average Cost of Capital (WACC): It is very important that you obtain your final estimate of your WACC based on the market value weights of debt, preferred stock and equity of your firm. If the market value of your debt is unavailable, it is acceptable to use the book value of debt as shown on your balance sheet. 5. Once you obtain your final WACC estimate, provide brief commentary on your view of your estimate, and whether it provides an appropriate reflection of the risk of your firm as you see it. Keep in mind that the risk of the overall market (the S&P 500), represents an average annual return of about 11%.