Disney Cost of Capital - 1059 Words

FINAN 6121 – Corporate Finance Cost of Capital – The Walt Disney Company Team Titans B (Doug Horne, Shaun Hoggan, James Thackeray, Jeff Burg) The purpose of this project is to determine the weighted-average cost of capital (WACC) for The Walt Disney Company. According to The Walt Disney Company’s Form 10-K filing for the fiscal year ended September 29, 2012, â€Å"The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.† Specifically the comparison between debt and equity will be summarized using the WACC for The Walt Disney Company as a whole rather than an†¦show more content†¦Also it is reasonable to conclude that with higher debt the company will experience a higher interest expense, resulting in a lower effective tax rate. Weighted Average Cost of Capital (WACC) – Finally, with the above values, Disney’s WACC can be determined by the following formula: WACC = [Equity/(Equity+Debt) X Cost of Equity] + [Debt/(Equity+Debt) X Cost of Debt X (1-Tax Rate)] The results of this calculation establish a WACC of 9.16% from the 10-K and 9.00% from the most recent 10-Q. Challenges – While some of the figures for determining The Disney Corporation’s WACC are taken directly from the company’s reported figures, others were estimated, like the beta, risk-free rate, and the market risk premium (all determinants of the cost of equity). By changing the beta in the calculations from 1.03 to that reported by The Walt Disney Corporation of 1.13, the WACC calculations change to 9.78% and 9.61%, respectively. This is slightly more than a half of a percent increase and is explainable by the assumption that the company’s financial executives may wish to establish a hurdle rate that guarantees a profitable return on capital investments. For this report the 30-year treasury rate was used for the risk-free rate, although, if the 10-year rates were used instead (1.65% and 1.73%) the WACC calculations would decrease byShow MoreRelatedDisney Strategic Planning Initiative1317 Words   |  6 Pagessell the strategic need first, operational development, and financial planning. Our team paper will illustrate a strategic initiative for the Disney organization as well as identify an initiative discussed in Disney’s Annual Report. The focus will look at how the initiative affects Disney’s financial planning and explain how the initiative can affect the costs as well as sales within this organization. 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