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    Cost of Capital - for Kraft Foods organization (KFT)

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    Estimate the weighted-average cost of capital for Kraft Foods (KFT).

    ---Feel free to use any other sources you like.
    - Recent financial statements of most public companies: http://www.secfilings.com/
    - Stock prices: http://finance.yahoo.com.

    ---1. Estimate the organization's cost of equity capital based on the Capital Asset Pricing Model.

    ---2. What is the organization's asset beta (its unlevered equity beta)?

    ---3. What is your estimate of the organization's weighted-average cost of capital? Clearly indicate what data you used and show how you calculated the WACC.

    ---4. What is your estimate of the organization's unlevered cost of capital? Clearly indicate what data you used and show how you calculated the unlevered cost of capital.

    ---5. Why might you want to know a company's unlevered cost of capital?

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    Solution Preview

    COST OF CAPITAL - for Kraft Foods organization (KFT)

    1. Estimate the organization's cost of equity capital based on the Capital Asset Pricing Model.
    Answer:
    As we know that, The Capital Asset Pricing Model (CAPM) is:

    Here,
    Ke= Cost of Equity
    Rf= Risk free rate
    Rm= Market rate of return, and
    β= Beta, systematic risk
    Now,

    To calculate the market rate of return dividend yield from the sector is taken and also the five year dividend growth in the food ...

    Solution Summary

    The cost of capital for the Kraft Foods Organization is examined. The organizations asset beta is determined as well as the weighted-average cost of capital.

    $2.19

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