Wacc Calculation

Hacking up Tech Data corp. WACC (2015)

Estimate of Marginal Cost of Capital for Each Component

Marginal Cost of Debt

The Marginal Cost of Debt will be calculated using the Treasury bond rate of the day as the base “free rate”.

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A Reuters Corporate Spreads of 204 basis points will then be added to the risk free rate, based on the assumption of a Baa3 credit rating by Moody's

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The spread added to the risk free rate gives us the marginal cost of debt.

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Marginal Cost of Equity

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To calculate the Marginal Cost of Equity we used two different methods. For the risk premium methods we assumed a subjectively estimated risk premium of 5% counting the fact of constant positive earnings for the last five years.

For the CAPM method we used Professor Pablo Fernandez 0.057 market risk premium recommendation and the company beta of 1.17.

After examining the estimate of each method, we have decided to choose an estimate average of the CAPM and the risk premium method.

Marginal Cost of Leasing

For this calculation we used a tax rate of 11.9 as express in the below table taken from the 2014 10k of the company. We then add a median risk premium of 0.015.

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Estimate the Value of Each Kind of Capital

1. Equity

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E = 38,250,000 shares ( $ 60.41 = $ 231,068,250

2. Borrowing

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3. Leasing

Here is the list of future capital and operating leases taken from the 2014 10-k

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The value of leasing is calculated by adding the present values of each lease cash flow together.

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WACC

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