CORPORATE ANALYSIS
Dr. Jaclyn Beierlein
FINA 4734 – Financial Management II
Submitted by:
Jason Hurley
Table of Contents
Executive Summary…………………………………………………………………………….. 3
Company Overview……………………………………………………………………………...4
Ratios:
 Profitability………………………………………………………………………………5
 Market Value…………………………………………………………………………….6
 Financial Leverage and Coverage……………………………………………………...7
 Liquidity………………………………………………………………………………….8
 Asset Management………………………………………………………………………9
Corporate Governance…………………………………………………………………………10
Cost of Capital:
 Introduction……………………………………………………………………………..11
 Cost of Equity……………………………………………………………………12,13,14
 Cost of Debt……………………………………………………………………………..15
 Market Value of Debt…………………………………………………………………..16
 Market Value of Equity………………………………………………………………...17
 Weighted Average Cost of Capital…………………………………………………….17
References……………………………………………………………………………………….18
Executive Summary
Dr. Pepper Snapple Group, incorporated on October 24, 2007, is an integrated brand
owner, manufacturer and distributor of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored carbonated soft drinks and non-carbonated beverages
(NCBs), including ready-to-drink teas, juices, juice drinks and mixers.
The goal of this report is to analyze and understand Dr. Pepper Snapple Group. In order
to do this, I must analyze and look at the underlying factors that have influenced the corporation.
The primary sections of this report will be to include and review an analysis on DPS’ riskiness,
cost of capital, performance and its capital structure.
In this analysis, I will discuss how DPS operates financially as a company and what they
must do to ensure consistency into the future using 2011 as a comparative year with their
competitors, as I feel it is a good representation within our industry. With a corporate history
closely associated with the history of the beverage and soft drink industry, DPS resides in a
competitive state over the industry and has recently yielded profitable returns with a little bit of
risk involved. Through two different approaches in estimating Intel's beta, a measure of
systematic risk, we have inferred DPS’ beta is under 1.0 and therefore implying a minimal
amount of riskiness. A beta of less than 1 means that the security will be less volatile than the
market.
Analyzing DPS risk will require the use of various quantitative methods such as looking
at the company’s market value, cost of capital, and weighted average cost of capital. Utilizing
these measures of risk, I can calculate an appropriate cost of capital for the firm by looking at its
debt and equity structure. Using the total debt to equity ratio and other key performance ratios, I
will be able to draw conclusions that shall accurately illustrate this company’s performance and
explain DPS’ current and future financial standing.
Company Overview
Dr. Pepper Snapple Group, Inc. is a leading integrated brand owner, manufacturer, and
distributor of non-alcoholic beverages in the United States, Canada, and Mexico. They have
some of the most recognized beverage brands in North America, with significant consumer
awareness levels and long histories that evoke strong emotional connections with consumers.
The company now known as Dr. Pepper Snapple Group has grown from a mixture of
discovery, invention and collaboration. This rich history includes the very birth of the soft drink
in 1783, when Jean Jacob Schweppe perfected the process for carbonating water and created the
world's first carbonated mineral water. Dr. Pepper and Snapple, the flagship brands of DPS, have
origins that share Schweppe's entrepreneurial spirit. Charles Alderton, a young pharmacist in
Waco, Texas, invented Dr. Pepper in 1885. It was served at the drug store where Alderton
worked and the first Dr. Pepper fans asked for a "Waco." The oldest soft drink in the United
States, it was later named Dr. Pepper, according to legend, after Dr. Charles Pepper, a friend of
the drug store owner. Nearly 100 years later, three New York-area health food storeowners
created a unique apple soda they named Snapple. They began selling the original Snapple in
health centers in 1973. Throughout the 1970s, the company that owned Snapple was known as
The Unadulterated Food Corporation, later becoming Snapple Beverage Corp.
In the 1980’s through the mid-1990’s, they began building on their then existing
Schweppes business by adding brands such as Mott’s, Canada Dry and A&W, and a license for
Sunkist soda. In 1995, they acquired Dr. Pepper/Seven Up, Inc., having previously made
minority investments in the company. In 1999, they acquire a 40% interest in Dr. Pepper/Seven
Up Bottling Group, Inc., which was then their largest independent bottler, and increased their
interest to 45% in 2005. In 2000, they acquired Snapple and other brands, significantly
increasing their share of the U.S. NCB market segment. In 2003, they created Cadbury
Schweppes Americas Beverages by integrating the way they managed their four North American
Businesses (Mott’s, Snapple, Dr. Pepper/Seven Up and Canada Dry and A&W). They were
incorporated in Delaware on October 24, 2007. Cadbury Schweppes separated its beverage
business in the U.S., Canada, Mexico and the Caribbean from its global confectionary business
by contributing the subsidiaries that operated its Americas Beverages business to them.
Dr. Pepper Snapple Group, Inc. has been able to yield profitable returns with the
exception of 2008. Dr. Pepper Snapple Group, Inc. has seen revenues remain relatively flat,
though the company was able to grow net income from $606.0M to $629.0M. A reduction in the
percentage of sales devoted to selling, general and administrative costs from 38.23% to 37.83%
was a key component in the bottom line growth in the face of flat revenues.
Total
Revenue
Gross Profit
Net Income
12/31/2012
$5,995,000
12/31/2011
$5,903,000
12/31/2010
$5,636,000
12/31/2009
$5,531,000
12/31/2008
$5,710,000
$3,495,000
$629,000
$3,418,000
$606,000
$3,393,000
$528,000
$3,297,000
$555,000
$3,120,000
($312,000)
Profitability
The return on assets is the rate of return being earned on the firm's assets. It is a measure
of how resourcefully the company is using all stakeholders' assets to gain returns. Compared to
the competition, DPS’ return on assets, with the exception of Constellation Brands Inc., is not on
par with the rest of the companies chosen for this industry. The return on equity looks at the
return to equity investors, using the net income as a measure of this return. The profit margin is
a measure of profitability and is calculated by finding the net income as a percentage of the
revenue. DPS’ ROA, ROE and Profit Margin in 2012 are, respectively, .0668, .2567, and .10. Dr.
Pepper Snapple Group is at a decent standing in terms of profitability and always has room for
improvement. In order to turn more profit, they must come up with more innovative ideas and
start making more new remarkable products, as well as seek out more assets.
12/31/2011
ROA
ROE
Profit Margin
DPS
Coca-Cola
Constellation
Brands Inc.
6.68%
25.67%
10%
11.21%
27.37%
18.55%
7.80%
21.90%
16.80%
National
Beverage
Corp.
34%
78%
6.79%
Jones Soda
94%
163%
41%
Market Value
Market Capitalization is a measurement of value based on share price and number of
shares outstanding. It commonly epitomizes the market's view of a company's stock value and is
a decisive aspect in stock valuation. The P/E ratio can be viewed as the number of years it takes
for the company to earn back the price you pay for the stock. Since the P/E ratio measures how
long it takes to earn back the price you pay, the P/E ratio can be applied to the stocks across
different industries. That is why it is the one of the most important and widely used indicators for
the valuation of stocks. As the number 3 company in the soft drinks and beverages industry,
behind PepsiCo and Coca Cola, Dr. Pepper fares pretty well.
12/31/2011
DPS
Coca-Cola
Constellation
Brands Inc.
P/E
Market to
Book
13.96
3.74
36.69
9.93
1.15
0.22
National
Beverage
Corp.
17.34
8.80
Jones Soda
1.73
2.77
DPS keeps a continuing trend going of increasing their price by small amounts as to
increase their overall P/E ratio. The market to book value is a financial ratio used to compare a
company's book value to its current market price. Theoretically, if you purchased stock with a
price to book value less than one and the company immediately went bankrupt, you would gain
money on your investment. In reality, this may not be true since there are times when liquidation
value, or the price at which a company's assets can be sold, is less than the book value of those
assets. If your business has a low market/book ratio, it’s considered a good investment
opportunity. In order to gain more investors, Dr. Pepper should consider lowering their stock
price on a monthly basis more often. Investors looking for value stocks often look for low market
to book companies.
Financial Leverage and Coverage
Leverage ratio is used by investors to gain insight about a company’s financial methods
as well as its ability to repay its debts. The term leverage pertains to the use of debts to fund
investments or acquisitions, with the hope that the rate of return from the investment is higher
than the rate of interest on the debts. Investing in companies that are highly leveraged is
considered risky by many investors because such companies are very much vulnerable to
economic declines, as they need to pay off their debts despite decreasing sales and production.
Coverage is a measure of a company's ability to meet its financial obligations. The higher the
coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. The
trend of coverage ratios over time is also studied by analysts and investors to ascertain the
change in a company's financial position.
12/31/2011
DPS
Coca-Cola
Constellation
Brands Inc.
Jones Soda
0.64
National
Beverage
Corp.
0.56
Total
Debt/Equity
Debt/Equity
Equity
Multiplier
Long-Term
Debt
Times Interest
Earned
Cash
Coverage
0.74
0.30
3.10
4.10
0.76
1.76
1.81
2.81
1.28
2.28
0.72
1.72
0.50
0.30
0.95
0.25
0.09
9.23
24.35
2.57
632.83
-
6.02
29.04
3.26
518.12
-
0.41
Debt when used properly can increase shareholder returns. Having too much, however,
leaves firms vulnerable to economic downturns and interest rate scrambles. Too much debt can
also increase the perceived risk with the business and discourage investors from investing more
capital. Compared to Coca Cola, Dr. Pepper seems to be a little more aggressive with financing
their growth with debt. A low debt to equity ratio indicates lower risk, because debt holders have
fewer claims on the company's assets. I believe that DPS is taking advantage of many
opportunities that it could not pursue when it was under Cadbury Schwepppes ownership, and as
the number three firm, they are beginning to prosper in an industry dominated by Coca Cola and
PepsiCo. With the company operating with a good portion of debt, they are implacably looking
to grow, but it is a little harder for them to meet their interest expense obligations.
Liquidity
Liquidity is important for both individuals and companies. While a person may be rich in
terms of total value of assets owned, that person may also end up in trouble if he or she is unable
to convert those assets into cash. The same holds true for companies. Without cash coming in the
door, they can quickly get into trouble with their creditors. Banks are important for both groups,
providing financial intermediation between those who need cash and those who can offer it, thus
keeping the cash flowing. An understanding of the liquidity of a company's stock within the
market helps investors judge when to buy or sell shares. Finally, an understanding of a
company's own liquidity helps investors avoid those that might run into trouble in the near
future.
12/31/2011
DPS
Coca-Cola
Constellation
Brands Inc.
Quick Ratio
Current Ratio
Cash Ratio
0.69
0.92
0.37
0.78
1.05
0.57
1.08
3.14
0.01
National
Beverage
Corp.
0.97
1.41
0.10
Jones Soda
1.43
2.31
0.69
Even though the company is not at a poor financial standing, their liquidity ratios imply
that they are not efficiently using their assets and facilities. In order to grow, they need to expand
their assets so that they exceed their liabilities. Once their current assets exceed their current
liabilities, it will be much easier for the company to meet its short-term obligations. Compared to
the other companies, they have lower liquidity ratios, as most of the other company’s ratios
exceed 1. Liquidity ratios are used to determine a business’s ability to pay off its short-term debt
obligations. The first liquidity ratio I used in my analysis is the current ratio. Coca-Cola has a
current ratio of 1.05 and DPS has a current ratio of 0.92. Coca-Cola is more able to cover its
short-term debt obligations than DPS. DPS’s current ratio indicates that the company is in
somewhat of a bad position because it is not able to meet its current debt obligations using only
its current assets. The quick ratio indicates a company’s ability to pay off its current debt
obligations using only its most liquid assets. This differs from the current ratio in that it does not
include inventory as an asset.
Asset Management
12/31/2011
DPS
Coca-Cola
Constellation
Brands Inc.
Jones Soda
0.46
7.99
National
Beverage
Corp.
3.28
10.65
Asset Turnover
Receivables
Turnover
Inventory
Turnover
Cash Conversion
Cycle
0.65
9.79
0.61
6.34
10.90
9.96
1.56
11.44
5.50
53.36
75.62
256.98
19.06
72.06
8.85
Companies with low profit margins tend to have high asset turnover, while those with
high profit margins have low asset turnover. Companies in the retail industry tend to have a very
high turnover ratio. Compared to the other companies in my industry, Dr. Pepper Snapple
Group’s asset turnover is shows that they use their assets efficiently as they are on par with
Coca-Cola, the number one company in the industry overall. The receivable turnover ratio
quantifies a company's ability to collect liabilities/debts. It helps investors gauge the efficiency
of a company's collection and credit policies. A high ratio value indicates an efficient and
effective credit policy, and a low ratio indicates a debt collection problem. In terms of
receivables, Dr. Pepper Snapple Group has efficiency compared to the other companies. They
operate on a good amount of debt, but are able to pay it back and do not have many collection
problems. The inventory turnover ratio is a ratio showing how many times a company's
inventory is sold and replaced over a period. This ratio should be compared against industry
averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio
implies either strong sales or ineffective buying, which DPS has in comparison to the other
companies. High inventory levels are unhealthy because they represent an investment with a rate
of return of zero. It also opens the company up to trouble should prices begin to fall. The cash
conversion cycle is the theoretical amount of time between a company spending cash and
receiving cash per each sale, output, unit of operation, etc. It is basically a measure of how long
cash is tied up in working capital. Management needs to divide up more sufficiently the amount
of time spent in each section of spending. They are on a good scale, but should try to improve in
the upcoming years.
Corporate Governance
Corporate Governance is a system in which rules, practice and processes of a company are
directed and controlled. It concerns the relationships among the management, Board of
Directors, controlling shareholders, minority shareholders and other stakeholders. Good
corporate governance contributes to sustainable economic development by enhancing the
performance of companies and increasing their access to outside capital. Since corporate
governance also provides the framework for attaining a company's objectives, it covers
practically every aspect of management, from action plans and internal controls to performance
measurement and corporate disclosure.
My criteria for a good Corporate Governance includes displaying integrity and ethical
behavior, giving equal treatment to shareholders, distributing roles and responsibilities among
the board, and how a company caters to the interest of other stakeholders. The Board of Directors
of Dr. Pepper Snapple Group, Inc. sets high standards for the Company's employees, officers and
directors. Implicit in this philosophy is the importance of sound corporate governance. It is the
duty of the Board of Directors to serve as a prudent fiduciary for shareholders and to oversee the
management of the Company's business. To fulfill its responsibilities and to discharge its duty,
the Board of Directors follows the procedures and standards that are set forth in these guidelines.
These guidelines are subject to modification from time to time as the Board of Directors deems
appropriate in the best interests of the Company or as required by applicable laws and
regulations.
The business affairs of the company are managed under the direction of the Board, which
represents and is accountable to the stockholders of the company. The Board’s responsibilities
include regularly evaluating the strategic direction of the company, management’s policies and
the effectiveness with which management implements its policies and overseeing compliance
with legal and regulatory requirements. The basic responsibility of the directors is to exercise
their business judgment to act in what they reasonably believe to be in the best interests of the
company and its stockholders. Each director should regularly attend and participate in committee
meetings and review information deemed to be important to the best conduct of business by the
company.
The Code of Business Conduct and Ethics embodies their commitment to conduct
business in accordance with all applicable laws, rules and regulations, to provide full, fair,
accurate and timely disclosure in public communications, reports and filings, and honest and
ethical conduct. They have adopted this code to promote compliance and avoid even the
appearance of improper conduct and behavior. Failure to comply with these regulations may lead
to company-imposed sanctions, including immediate dismissal for cause, whether or not there is
a violation of law.
Cost of Capital
The cost of capital refers to the cost of a company’s funds, including both debt and
equity. It is used to evaluate new projects because it represents the minimum return that investors
expect for providing capital to the company. In this section, I calculated the cost of equity, cost
of debt, and the capital structure in order to estimate costs associated with raising capital. Dr.
Pepper Snapple Group’s preferred stock is $.01 of par value, and 15,000,000 shares authorized,
but no shares have been issued. Therefore preferred stock will be excluded.
Sub-sections:
- Cost of Equity
- Cost of Debt
- Market Value of Equity and Debt
- Weighted Average Cost of Capital
Cost of Equity
Cost of equity is reward to the shareholders for the risk they take to invest capital. I have
calculated DPS’ cost of equity using the Capital Asset Pricing Model approach to determine
required return. This equation, seen below, calculates the required return from the risk free rate
plus the beta multiplied by the market risk premium:
𝑹𝒆 = 𝑹𝒇 + 𝑩(𝑹𝒎 − 𝑹𝒇)
Beta
Regression Beta
Bottom-Up Beta
0.6867
0.8403
The Capital Asset Pricing Model breaks down expected stock returns into two
components. The first is the return that would be expected based on covariance with the
movements of the market. The second part is the increase in the price of a stock that is not
explained by the market. The first part is what beta captures. We break down betas into their
business components, operating leverage, and financial leverage to come up with estimates. The
bottom-up beta provides an alternative way of measuring betas such that we do not need
previous prices of an individual firm to estimate its beta. Dr. Pepper Snapple Group has a market
risk of 12.42%, with 87.58% being firm-specific. I will choose the bottom-up and regression beta
in my cost of equity estimation. The bottom-up beta can reflect recent and even forthcoming
changes to a firm's business mix and financial leverage, because we can change the mix of
businesses and the weight on each business in making the beta estimate. My bottom up
calculation is as follows:
𝑩𝑼𝑩 = 𝑼𝒏𝒍𝒆𝒗𝒆𝒓𝒆𝒅 𝒆𝒒𝒖𝒊𝒕𝒚 𝒃𝒆𝒕𝒂 ∗ (𝟏 + (𝟏 − 𝒕) ∗ 𝑴𝑽 𝑫/𝑬)
Unlevered equity beta = 0.84
Marginal tax rate = 40%
Market Value D/E Ratio = 0.000800456
Risk-free Rate:
The risk-free rate used to come up with expected returns should be measured in a way
consistent with how the cash flows are measured. The risk-free rates I chose are rates from
Bloomberg that are 10-year and 5-year Treasury bonds. For the purpose of this analysis, I chose
these rates because they are generally safe investments. DPS’ strengths can be seen in multiple
areas, such as its revenue growth, notable return on equity, reasonable valuation levels, solid
stock price performance and growth in earnings per share. I feel these strengths outweigh the fact
that the company has had generally high debt management risk.
10-Year Treasury Bond Rate
5-Year Treasury Bond Rate
2.00%
0.86%
http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
Market Risk Premium:
Implied Risk Premium
Historical Risk Premium
5.78%
2.47%
http://pages.stern.nyu.edu/~adamodar/
These market risk premiums come from Aswath Damodaran’s website. When calculating
the cost of equity, I have determined that the historical risk premium of 2.47% provides a rather
inaccurate cost of equity for DPS. The implied risk premium is more preferable as it is adjusted
for growth estimates by analysts, while the historical risk premium moves frequently in the
wrong direction. If a company values its assets, it is better to stick closer to the implied risk
premium. DPS has admirable asset management and thus their cost of equity is better estimated
with the implied risk premium.
Sensitivity Analysis:
I have conducted an analysis to show how the stock price fluctuates with the changes in
several core assumptions. I considered a reasonable range in order to adjust to economic,
industry, and company specific trends. I believe that the bottom-up and regression beta most
accurately portrays the company’s risk level, and gives different variations of volatility.
Considering the changing economic conditions and market trends, it is necessary to test price
sensitivity against different possible risk-free rates and market risk premiums. Generally, a
higher market risk premium means a higher result. Below I have put together a table and chart
that represents the different cost of equity variations I calculated changing either the risk-free
rate, beta, or market risk premium:
Risk-free Rate
Beta
10-Year = 2.00%
10-Year = 2.00%
5-Year = 0.86%
10-Year = 2.00%
Bottom Up = 0.84
Regression = 0.6868
Bottom Up = 0.84
Bottom Up = 0.84
Market Risk
Premium
Implied = 5.78%
Implied = 5.78%
Implied = 5.78%
Historical = 2.47%
Cost of Equity
6.86%
5.97%
5.72%
4.07%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
Cost of Equity (Bottom
Up, 10-Year, IPR)
Cost of Equity
(Regression, 10-Year,
IPR)
Cost of Equity (Bottom
Up, 5-Year, IPR)
Cost of Equity (Bottom
Up, 10-Year, HPR)
Cost of Debt
Cost of debt is the effective rate that a company pays on its current debt obligations. In
order to determine DPS’ cost of debt, I will include the bond rating which determines the default
spread used in calculating a premium associated with issuing debt. I have determined that DPS
has a synthetic rating of BB, which means they have an acceptable capacity to meet financial
commitments, but are somewhat susceptible to adverse economic conditions and changes in
circumstances. The default spread associated with this rating is 4%. The cost of debt is then
calculated by adding the default spread to the risk-free rate of 2%, which would equal 6%.
Risk-free Rate
2.00%
Interest Coverage Ratio (AVG)
Estimated Bond Rating
Default Spread
Cost of Debt
3.11
BB
4.00%
6.00%
EBIT (2012)
Interest Expense (2012)
Times Interest Earned (EBIT/Int. Exp.)
$1,092,000
$125,000
8.74
DPS has an actual debt rating of BBB, which implies a default spread of 2%. When it is
added to the risk-free rate of 2%, the cost of debt is equal to 4%. A difference between the actual
rating and our synthetic rating can be contributed to the fact that the synthetic rating is simply
looking at DPS’ ability to pay interest at the current time. I have not determined the effects of
changes in the economy that could create an inability to cover debt obligations.
Market Value of Debt
Present Value of Operating Leases
Year
2014
2015
2016
2017
2018
2019 and beyond
Debt Value of
leases =
Commitment
$
48.00
$
39.00
$
30.00
$
23.00
$
60.00
$
30.00
Present
Value
$
45.28
$
34.71
$
25.19
$
18.22
$
44.84
$
41.10
$
209.34
Present Value of Interest Bearing Debt
Rate (Cost of Debt)
Weighted Average Maturity
4.00%
6.82
BVD (2012)
$6,648,000
Interest Expense (2012)
PV of Debt
$173,400
$5,867,339
𝑴𝑽𝑫 = 𝑷𝑽 𝒐𝒇 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑩𝒆𝒂𝒓𝒊𝒏𝒈 𝑫𝒆𝒃𝒕 + 𝑷𝑽 𝒐𝒇 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑳𝒆𝒂𝒔𝒆𝒔
MVD = $5,867,338.84 + $209.34
MVD = $5,867,548.18
DPS has issued a relatively small amount of debt, $6.6 million, with a weighted average
of 6.82 years until maturity. The present value of this debt is calculated by taking the total debt
and linking it together using the weighted average maturity, current interest expense, and the cost
of debt rate. From this method we are able to determine the first half of the market value of debt.
The second half of the debt calculation involves finding the present value of operating leases that
DPS is bound to. Operating leases contribute to the market value of debt because they are an
agreement in which one party gains a long-term rental agreement, and the other party receives a
form secured long-term debt. Through combining both of these values we conclude that DPS’
market value of debt is just under $6 million.
Market Value of Equity
The market value of equity for DPS has been determined by multiplying the number of
shares outstanding by the price for one share on December 31, 2012. This gives us a total market
value of equity of $9,379,414.
𝑀𝑉𝐸 = 𝑃 ∗ 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 + 𝐸𝑞𝑢𝑖𝑡𝑦 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑜𝑛𝑣𝑒𝑟𝑡𝑖𝑏𝑙𝑒 𝐷𝑒𝑏𝑒𝑛𝑡𝑢𝑟𝑒𝑠
Shares Outstanding (12/2012)
Share Price (12/31/2012)
Market Value of Equity
212,300
$44.18
$9,379,414
After determining the market value of debt and market value of equity, we are able to
find the total market value of the firm by adding the two. We found the weights of MVD and
MVE by dividing them by the total market value. After calculating the weights, we are able to
use the costs associated with each to determine the weighted average cost of capital which is a
weighted average representing the cost of financing derived from the returns demanded by
shareholders and creditors.
Weighted Average Cost of Capital
𝑾𝑨𝑪𝑪 = 𝑬𝒒𝒖𝒊𝒕𝒚 𝑾𝒆𝒊𝒈𝒉𝒕 ∗ 𝑹𝒆 + 𝑫𝒆𝒃𝒕 𝑾𝒆𝒊𝒈𝒉𝒕 ∗ 𝑹𝒅 (𝟏 − 𝑻)
Equity Weight = MVE / Total Market Value = 9,379,414 / 15,246,753 = 61.52%
Debt Weight = MVD / Total Market Value = 5,867,339 / 15,246,753 = 38.48% (FIX THIS)
Equity
Weight
0.6152
0.6152
0.6152
Debt Weight
0.3848
0.3848
0.3848
Cost of
Equity
0.0686
0.0597
0.0686
Cost of Debt
Tax Rate
WACC
0.06
0.06
0.04
34%
40%
40%
5.74%
5.06%
5.14%
WACC is one of the most important figures in assessing a company’s financial health,
both for internal use and external use. It gives companies an insight into the cost of their
financing, can be used as a hurdle rate for investment decisions, and acts as a measure to be
minimized to find the best possible capital structure for the company. To try to see how my
weighted average cost of capital would differ if I were to change certain values, I divided up my
cost of equity and cost of debt estimations, while applying marginal tax rates. As the table above
shows, my WACC is within a consistent range of five to six percent.
References
http://pages.stern.nyu.edu/~adamodar/
http://quotes.morningstar.com/stock/dps/s?t=dps
http://www.drpeppersnapplegroup.com/
http://www.reuters.com/finance/stocks/companyOfficers?symbol=DPS.
N
http://finance.yahoo.com/q/pr?s=dps
http://www.marketwatch.com/investing/stock/dps/profile
http://www.wikinvest.com/stock/Dr_Pepper_Snapple_Group_(DPS)
http://www.bloomberg.com/quote/DPS:US