Estimating Walmart’s Cost of Capital

Estimating Walmart’s Cost of Capital

Please show your calculations. Reference the numbers you use to the case and Exhibits.

Walmart case is in the case e-book – Please see the link in the syllabus

 

  1. What is cost of capital? What does it represent?

 

  1. Why is it important to estimate cost of capital?

 

  1. Is cost of capital set by investors or managers?

 

  1. How should Dale and Lee estimate the cost of long-term debt? Should short-term debt be considered in calculating cost of capital?

 

  1. How should Dale and Lee estimate the cost of equity?

 

  1. Use dividend discount model to estimate cost of equity. Calculate growth rate using historical dividend growth rate and ROE*retention rate formula.
  2. Use capital asset pricing model to estimate cost of equity.
  3. Discuss which model is more appropriate in this case.

 

  1. How should Dale and Lee calculate the weights for debt and equity?

 

  1. Calculate Walmart’s cost of capital. How should Walmart use this number?