# capital planning

January 13, 2021
###### Caring for Patients Utilizing Complementary and Alternative Therapies
January 13, 2021

I will send the excel spread sheet.. References have to have a web address.

Review the WACC calculations in the attached Excel file. In your own words, do the following:

• Explain the steps for deriving the WACC.
• Discuss the challenges involved in deriving the WACC.
• Rank and discuss other capital project evaluation techniques, and explain the reasoning behind your ranking

 Cost of Capital – WACC Market Interest Rate a) What is the market interest rate on UPC’s debt and its component cost of debt? Coupon rate 6% Coupons per year 1 Years to Maturity 15 Price \$10,153.72 Face value \$10,000 Tax rate 30% N 15 PV \$10,153.72 PMT \$600 FV \$10,000 B-T rd 5.8% Market Interest Rate A-T rd 4.1% Cost of Debt Cost of Preferred Stock b) What is UPC’s cost of preferred stock? Nominal dividend rate 8% Dividends per year 4 Par value \$100 Price \$111.10 rp 7.20% Cost of Preferred Stock Cost of Common Stock c) What is UPC’s estimated cost of common equity using the CAPM approach? β 1.2 Beta rRF 7% Risk Free Rate RPM 6% Market Risk Premium rS 14.20% Cost of Common Stock Discounted Cash Flow Approach (DCF) d) What is the estimated cost of common equity using the DCF approach? Price \$100 Current dividend \$10.00 Constant growth rate 5% D1 \$10.45 Dividend after Year 1 rs 14.95% Cost of Common Stock Cost of Common Stock e) What is the bond-yield-plus-risk-premium estimate for UPC’s cost of common equity? “Bond yield + RP” premium Given RP = 3% ks         = 8.84% PART G f) What is your final estimate for rs? METHOD ESTIMATE CAPM 14.20% DCF 14.95% rd + RP 8.84% Average 12.66% WACC g) What is UPC’s overall, or weighted average cost of capital (WACC)? Structure wd 30% A-T rd 4.09% wp 10% rp 7.20% WACC = 9.55% ws 60% rs 12.66%

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