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Discount, Variety Stores

Discount, Variety Stores. Module 6: Cost of Capital and Valuation Claire ( Lan ) Lin. Cost of Equity Capital Using CAPM. Cost of Equity Capital Using CAPM. Market β : Regression. Data : m onthly r eturns from 03 /02/2009 to 02/03/2014. β =0.441. Beta Estimates. Regression : β =0.44

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Discount, Variety Stores

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  1. Discount, Variety Stores Module 6: Cost of Capital and Valuation Claire (Lan) Lin

  2. Cost of Equity Capital Using CAPM

  3. Cost of Equity Capital Using CAPM

  4. Market β: Regression Data: monthly returns from 03/02/2009 to 02/03/2014 β=0.441

  5. Beta Estimates Regression: β=0.44 Estimates: β=0.40 About 10% difference

  6. Market β 0.495? 0.44? 0.40? • β from Bloomberg: 0.495 • Which β number is better • Regression: historical data may not well forecast future performance • Estimates: can be subjective; range from 0.31 to 0.6 • Bloomberg number may be a better indication

  7. Cost of Capital Equity Using CAPM • =+β*(- )

  8. Cost of Debt Capital Is the classification of NFL and NEA correct (ex: 2% cash needed for operation)? 10K footnotes may be a better indication

  9. Cost of Enterprise Capital

  10. Cost of Enterprise Capital Three Beta numbers are from regression, finance website estimates and Bloomberg respectively

  11. Cost of Enterprise Capital • No significant difference among these numbers • However, a slight difference can result in a huge change in valuation • Bloomberg(6.60%) may be the best indication

  12. Valuating Walmart Bloomberg 6.60% is the highest of the four estimated WACC WACC=6.60%

  13. Valuating Walmart 6.04% (derived from average estimated Beta) is the lowest of the four estimated WACC WACC=6.04%

  14. Valuating Walmart The enterprise value calculated from Bloomberg WACC approximates the current enterprise value

  15. Arguments

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