loading1.There are different ways of describing the WACC. which of the following descriptions is accurate for Walmart's WACC？ Select all that apply。
Walmart's WACC is the weighted average cost of capital for the sources of capital used in Walmart's capital structure.
Walmart's WACC is the appropriate discount rate for future projects at Walmart that have the same risk as the current projects at Walmart.
Walmart's WACC is the appropriate discount rate in a DCF valuation of Walmart's future FCFs.
2.A generic WACC formula is shown below. There are multiple inputs to this formula. Assume you plan to use the WACC to discount an infinite series of cash flows. Which of the following answers describes a plausible way to solve for the cost of equity？ Select all that apply.
Use a CAPM with a long-term risk-free rate a market risk premium between 4-6%， and Walmart's asset beta.
Use a constant growth model. Using a plausible perpetual growth rate（g） and the current dividend（D0） you can solve for the next period's dividend payment (D1=D0*（1+g））。 Then using the current share price, g, and D1 you can solve for the implied cost of equity.
Use the cost of equity at a competitor store（like Target） as your estimate of Walmart's cost of equity.
Use a CAPM with a long-term risk-free rate, a market risk premium around 10%， and Walmart' s equity beta.
Use a CAPM with a long-term risk-free rate, a market risk premium between 4-6%,and Walmart 's equity beta.
3.As discussed in class there are different\20-year risk free rate is different than the 3-month rate. True False
4.A generic WACC formula is shown below. There are multiple inputs to this formula. assume you plan to use the wacc to discount an infinite series of cash flows. Which of the following items from Exhibits 2 would be added together as part of the calculation of the\the WACC formula？ Select all that apply.
Current Portion of Long-Term Debt Long-term Debt
Other Current Liabilities Accounts Payable
5. A generic WACC formula is shown below. There are multiple inputs to this formula. Assume you plan to use the wacc to discount an infinite series of cash flows. Which of the following items from Exhibits 3 would be added together as part of the calculation of the\the WACC formula？ Select all that apply.
Cost of goods sold Interest Expense
Operating, Selling, General & Administrative Expenses
none of the Exhibit 3 items would be part of this calculation Other Items
6. A generic WACC formula is shown below. There are multiple inputs to this formula. Assume you plan to use the WACC to discount an infinite series of cash flows. This question is about the \
If you look at Exhibit 3 you will see that the 2019 Income Tax Expense is around 37. 3% of the Income before Income Taxes.
In the case Lee said\read that the new rate is 21 per cent. But a recent press release to accompany Walmart's quarterly returns says the company is anticipating an effective tax rate of around 27 percent.\
Which of the following numbers would be the best tax rate to use in the formula？
37.3% 27% 21%
7.In the case Lee said\，2000， Walmart issued $1 billion in bonds with a coupon rate of 7.55 per cent. The bonds mature on February 15，2030， around 11 years from now. I also noticed from an online source that these bonds were selling for $136.38 and yielding 3.53 percent.\
Assuming that（1）this bond issue is a plain bond without any options, （2）the prime rate is 5.50%， （3） the 20-year risk free rate is
2.90%， what would be your best guess of Walmart's cost of debt at the time of the case？ 7.55% 2.9% 3.53% 5.50%
8.The case talks about a bond issued in February 2000 that was trading with a yield of 3. 53% in March 2019. Assume the bond as originally issued at $100. the figure shown below plots the yield to maturity of this bond over the last 5 years. The black circle identifies the yield at the time of the case. The hollow red arrow points to a few days in march 2020 when the yields on this bond jumped. Which of the following statements is accurate？ Select all that apply.
The yield to maturity in February 2000 would have been higher than the yields shown in this plot. Walmart's cost of debt has generally decreased since 2018 with the exception of a few brief periods when it increased.
The price of this bond in early 2021 is higher than the price of this bond at the time of this case.
9.As part of our class discussion of the WACC formula the point was made that the D and E in the WACC formula should ideally be market values. Per case Exhibit 2 the long-term debt is $50，203 million. Assume for this one question that this entire amount is from the bond that was issued in Feb 2000 and is currently trading at $136.38 with a yield of 3. 53% and a coupon of 7. 55 percent. What is your best guess for what the market value would be of this long-term debt？ $51,975 million $68467 million $50,203 million
$53,993
10. Which of the rates listed below is the closest number to the WACC you would calculate for Walmart using the information in the case and the approximate market risk premium described in lecture？ Assume you are going to use the raw beta in the CAPM. 5% 4% 6% 7%
rE=2.90%+0.67*(10%-2.90%)=7.66% E=2945*102.2=300979
WACC=3.53%*(1-27%)*(50230/(50230+300979))+7.66%*(300979/(50230+300979))=6.93%
11.As stated in the syllabus, the case questions are graded mostly on completion. Click True below if on your honor（1） you read the entire case and looked at the exhibits, and （2） you tried to answer all of the canvas questions Clicking True will give you 13 free points on this assignment. These 13 points are my way of \True False