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Mod 6 Cost of Capital and Valuation: An Illustration of Microsoft

Mod 6 Cost of Capital and Valuation: An Illustration of Microsoft. Di (Wendy) Wang. Cost of Capital Assumptions. Basis of the forecast in the last module. Exploration of Cost of Capital. When valuing firms, we are considering three different cost of capitals:.

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Mod 6 Cost of Capital and Valuation: An Illustration of Microsoft

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  1. Mod 6 Cost of Capital and Valuation: An Illustration of Microsoft Di (Wendy) Wang

  2. Cost of Capital Assumptions Basis of the forecast in the last module

  3. Exploration of Cost of Capital When valuing firms, we are considering three different cost of capitals:

  4. Relation Amongst Cost of Capitals Not observable Not observable WACC Not observable

  5. Sources of Risk and How to Compute Inherent risk in the enterprise and debt are sources of equity risk Sources of risk Enterprise Debt Equity Used to compute

  6. Cost of Equity Capital Using CAPM

  7. CAPM Regression

  8. CAPM Regression

  9. CAPM Regression

  10. CAPM Regression

  11. β-Bloomberg

  12. WACC-Bloomberg

  13. Beta Estimates from Various Websites

  14. Cost of Equity Capital Using CAPM For Microsoft, 9.89%=3.53%+[0.909*(10.52%-3.52%)]

  15. Cost of Debt Capital

  16. Cost of Debt Capital-Method 1

  17. Cost of Debt Capital-Method 2

  18. Cost of Enterprise Capital

  19. Valuing Microsoft Estimated growth rate beyond 2018: 3.6% Estimate of enterprise cost of capital: 12.49%—my estimate

  20. Valuing Microsoft Estimated growth rate beyond 2018: 3.6% Estimate of enterprise cost of capital: 12.49%—my estimate

  21. Valuing Microsoft Estimated growth rate beyond 2018: 3.6% Estimate of enterprise cost of capital: 9.1%—Bloomberg estimate

  22. Valuing Microsoft Estimated growth rate beyond 2018: 3.6% Estimate of enterprise cost of capital: 9.1%—Bloomberg estimate

  23. Sources: • Microsoft Form10-K For the Fiscal Year Ended June 30, 2011 • http://apps.shareholder.com/sec/viewerContent.aspx?companyid=MSFT&docid=8062497 • Microsoft Form10-K For the Fiscal Year Ended June 30, 2012 • http://apps.shareholder.com/sec/viewerContent.aspx?companyid=MSFT&docid=8733512 • Microsoft Form10-K For the Fiscal Year Ended June 30, 2013 • http://apps.shareholder.com/sec/viewerContent.aspx?companyid=MSFT&docid=9422625

  24. THANK YOU!

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