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Web Based Project on Target

Capital budgeting involves decisions about whether or not to invest in fixed assets, and it has a major influence on firms' future performances and values. Discounted cash flow analysis is used in capital budgeting, and a key element of this procedure is the discount rate used in the analysis. Capital must be raised to finance fixed assets, and this capital comes from different sources: debt, preferred stock, and common equity. Each of these capital components has a cost, and these cost rates, along with the target proportions of each, are used to calculate the firm's weighted average cost of capital or "WACC."

In this project, you must obtain information about the publicly traded company you chose in the Unit 6 Web Field Trip from sources such as Yahoo! Finance (http://finance.yahoo.com), Moody's (http://www.moodys.com), and Bonds Online (http://www.bondsonline.com) to estimate a firm's WACC.
Project
The Project will be based on what you research in the URL's above.
1. What is the firm's Market Cap?
2. What are the firm's capital component weights?
3. What is the firm's beta?
4. What are the yields on the 6-month and 10-year Treasury securities?
5. What is your estimate of the firm's rs using the Capital Asset Pricing Model (CAPM)?
6. What is the firm's bond rating?
7. What are your estimates of the firm's costs of short-term and long-term debt?
8. What is the firm's weighted average cost of capital (WACC)? Assume the firm has an effective tax rate of 35% and use the component weights, and component costs calculated earlier to estimate its WACC.
9. Comment on your experience in estimating the selected firm's WACC. What problems/difficulties did you encounter? Are you surprised at the firm WACC you calculated? Explain your answer.

Solution Preview

1. What is the firm's Market Cap? = $57.20 bn

http://finance.yahoo.com/q?s=TGT

2. What are the firm's capital component weights?
The weights are given in the table mentioned below

3. What is the firm's beta? = 1.14

http://finance.yahoo.com/q/ks?s=TGT

4. What are the yields on the 6-month and 10-year Treasury securities?

6 month= 4.19%
10 year= 4.64%
http://www.bloomberg.com/markets/rates/index.html

5. What is your estimate of the firm's rs using the Capital Asset Pricing Model (CAPM)?

rs = r f + β (r m - r f)

r f = 4.64% =risk free rate (10 year treasury ...

Solution Summary

This solution focuses on the Target Corporation and uses financial data from Yahoo to calculate the market cap, capital component weights, beta value, treasury securities, CAPM, bond rating, short and long term debt, and WACC. It also includes an income statement, balance sheet and cash flow statement.

$2.19