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    Capital Valuation - Walmart

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    Justify the current market price of the organization's (Walmart) debt, if any, and equity using various capital valuation models.

    - Show calculations that support your findings, including those involving rate of return.
    - Defend which valuation model best supports your findings.

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    https://brainmass.com/business/capital-asset-pricing-model/capital-valuation-walmart-485346

    Solution Preview

    Capital valuation is a process of determining the current value of company's asset, debt and equity by using different models or techniques (Pratt, 2003).
    Capital Valuation of Wal-Mart
    The capital structure of Wal-Mart includes both debt and equity in terms of long term debt and common stock shares respectively. There are various capital valuation models such as non-constant dividend growth, constant dividend discount growth, price/earnings (P/E) ratio, discounted cash flow analysis etc. that can be useful to justify current market price of company's debt and equity by calculating value of debt and equity capital (Lee & Lee, 2010).
    Debt Valuation
    In order to justify current market price of Wal-Mart's debt, the market value of company's debt is determined by using capital valuation models or Miller-Modigliani approach. It is more difficult to obtain or determine market value of debt as compared to equity, because most of the firms have non-traded debt that normally specified in book value not in market value term (Tuller, 2008). The long term debt of the firm includes unsecured debts that are dominated in U.S. dollar, Euro, Sterling and Yen. The following table exhibits the long term debt structure of Wal-Mart.
    (In millions of U.S. dollars) Maturity Dates
    by Fiscal Year January 31, 2011
    Amount Interest Rate
    Unsecured Debt
    Fixed
    Variable

    $29,945
    500
    4.7%
    5%
    Total Denominated U.S. Dollar
    Fixed
    Variable 2012-2041 30,445
    1369
    -
    4.9%
    -
    Total Denominated Euro
    Fixed
    Variable 2030 1,369
    6,402
    -
    5.2%
    -
    Total Denominated Sterling
    Fixed
    Variable 2013-2039 6,402
    3,085
    2,242
    1.5%
    1%
    Total Denominated Yen 2012-2021 5,327
    Total Unsecured Debt 43,543
    Total Other Debt (in USD) 2012-2029 1,537
    Total Debt 45,080
    Less amounts due within one year
    Derivative fair value adjustments (4,655)
    267
    Long-term Debt $40,692
    (Source: Annual Report, 2011).
    In this case, the current market value of Wal-Mart's debt can be justified by calculating market value of debt. In this way, the following formula can be useful to determine market value of company's debt.
    +
    Where,
    Dm = Estimated market value of debt
    i = Interest rate = 4.7%
    n = Maturity period = 20 years (Assumed)
    Book value of debt = $40,692 million (Annual Report, 2011).
    Interest expenses (during 2011) = $2322 million
    Then, market value of Wal-Mart debt will be -
    +
    = $45927 million or $45.93 billion
    Assumption: (It is assumed that the average maturity period for debt is 20 years, ...

    Solution Summary

    Expert justifies the current market price of the organization's debt. The valuation models best supports finding is defended.

    $2.19

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