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.
- 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.© BrainMass Inc. brainmass.com October 16, 2018, 11:05 pm ad1c9bdddf
This response outlines the necessary steps to take to calculate the weight average cost of capital.
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:
HERE IS THE FORMULA FOR W.A.C.C.:
WACC = E/V * Re + D/V * Rd * (1-Tc)
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).