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Whole Foods: WACC

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Whole Foods Market is company with over $1 billion in annual sales. The firm, which operates under the ticker symbol WFMI uses bonds, preferred stock, and common stock for funding.
- Whole Foods bonds each sell for $935, pay coupons of $20 every six months, and have 8 years remaining to maturity. The par value of the bonds is $1,000. The total market value of the bonds is currently $929.2 million.
- Whole Foods has preferred stock as well which carries a total market value of $425 million. Each share sells for $25 and pays a dividend of $0.50 quarterly.
- Whole Foods has 140.3 million shares of common stock outstanding. Each share of stock is selling for $18.50.

Other information:
- The risk-free rate is currently 3%, and you believe the market risk premium is 6%.
- According to ValueLine, WFMI's beta is 1.05. Yahoo reports WFMI's beta to be 0.95. You decide to use an average of the two sources for this problem, resulting in a beta of 1.00.
- Also according to ValueLine, WFMI's tax rate is 41%.

According to the data above, calculate WFMI's Weighted Average Cost of Capital.

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Solution Summary

This response outlines the necessary steps to take to calculate the weight average cost of capital.

$2.19
Similar Posting

Holt's Model

See attached file.

Determine BOTH the WACC and Holt's Valuation for Whole Foods Market Inc's stock.

We will be using $0 as the dividend and $26.67 as the recent share price of the stock. Tax rate for the company is 41.5%.
Additional company data can be found here:
http://www.marketwatch.com/story/10-k-whole-foods-market-inc-2009-11-27

HERE IS THE FORMULA FOR W.A.C.C.:

WACC = E/V * Re + D/V * Rd * (1-Tc)

Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate

AND HERE IS INFORMATION FOR THE HOLT'S MODEL: (*:fair value)
We need to compare against: Retailing Foods Industry as well as the competitor Kroger, Inc.
This is an example of what the model should look like (see attached).

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