Purchase Solution

# Weighted Average Cost of Capital (WACC)

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5). Calculate the W.A.C.C. of the company and Compare to the R.O.I.C as derived from EVA.
a. Use data from the financial statements.
b. Use published interest rates on the notes to the financial statements.
c. Cost of equity estimation.
d. Example of WACC from large firms
e. Method firm uses to determine cost of Retained Earnings?
a. CAPM?
b. DCF?
c. Bond Yield Plus Risk Premium Approach?
d. Other?

INFORMATION:

Calculate the Weighted Average Cost of Capital for Solectron, Inc.

10-year bond - 10
Beta: 3.079
Required rate of return: 12.2

For the purposes of the project, utilize the Capital Asset Pricing Model (CAPM) and the Discounted Cash Flow Method (DCF) to determine the cost of retained earnings for this analytical project.

Capital Structure of Solectron

Long-term Debt \$1,824.40
Preferred Stock Equity \$0
Working Capital \$1,718.90
Total Assets \$6,529.50
Stockholder Equity \$1,422.00
Total \$11,494.8

*Data charted in millions

2003 2002 2001 2000 1999
Working capital \$1,718.90 3,654.80 6,014.80 5,411.40 3,162.70
Total assets 6,529.50 11,014.00 13,079.90 10,375.60 5,420.50
Long-term debt 1,824.40 3,183.90 5,027.50 3,319.50 922.70
Stockholders' equity 1,422.00 4,722.70 5,150.70 3,802.10 3,166.90

*Charted data in millions.

Stockholder Equity

2003 2002 2001
Number of shares Outstanding 64 63.2 47.9
Number of shares Exercisable 37.5 36.4 27.0
Weighted Average Exercise Price \$2.29 \$6.97 \$17.91

Capital Expenditures

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