gather the required inputs to calculate their current WACC percentage. (Use 3.05

Question

gather the required inputs to calculate their current WACC percentage. (Use 3.05% as the current risk-free rate of return and 7.50% as the expected market rate of return). Show all of your work to receive full credit.

Johnson & Johnson (JNJ) $121.34 At close: June 29 4:01PM EDT Income Statement All numbers in thousands Revenue 12/31/2017 1/1/2017 1/3/2016 Total Revenue 76,450,000 71,890,000 70,074,000 Cost of Revenue 25,354,000 21,685,000 21,536,000 Gross Profit 51,096,000 50,205,000 8,538,000 Operating Expenses Research Development 10,554,000 9,095,000 9,046,000 Selling General and Administrative 21,420,000 19,945,000 21,203,000 Non Recurring 717,000 520,000 733,000 Operating Income or Loss 18,405,000 20,645,000 17,556,000 Income from Continuing Operations Total Other Income/Expenses Net 202,000 -116,000 2,192,000 Earnings Before Interest and Taxes 18,607,000 20,529,000 19,748,000 Interest Expense 934,000 726,000 552,000 Income Before Tax 17,673,000 19,803,000 19,196,000 Income Tax Expense 16,373,000 3,263,000 3,787,000 Net Income 1,300,000 16,540,000 5,409,000 Johnson & Johnson (JNJ) $121.34 At close: June 29 4:01PM EDT Balance Sheet All numbers in thousands Period Ending 12/31/2017 1/1/2017 1/3/2016 Current Assets Cash And Cash Equivalents 17,824,000 18,972,000 13,732,000 Short Term Investments 472,000 22,935,000 24,644,000 Net Receivables 13,490,000 11,699,000 10,734,000 Inventory 8,765,000 8,144,000 8,053,000 Other Current Assets 2,537,000 3,282,000 3,047,000 Total Current Assets 43,088,000 65,032,000 60,210,000 Long Term Investments - - - Property Plant and Equipment 17,005,000 15,912,000 15,905,000 Goodwill 31,906,000 22,805,000 21,629,000 Intangible Assets 53,228,000 26,876,000 25,764,000 Other Assets 4,971,000 4,435,000 4,413,000 Deferred Long Term Asset Charges 7,105,000 6,148,000 5,490,000 Total Assets 57,303,000 41,208,000 33,411,000 Current Liabilities Accounts Payable 26,631,000 21,603,000 20,743,000 Short/Current Long Term Debt 3,906,000 4,684,000 7,004,000 Total Current Liabilities 30,537,000 26,287,000 27,747,000 Long Term Debt 30,675,000 22,442,000 12,857,000 Other Liabilities 27,563,000 19,151,000 19,095,000 Deferred Long Term Liability Charges 8,368,000 2,910,000 2,562,000 Total Liabilities 97,143,000 70,790,000 62,261,000 Stockholders' Equity Preferred Stock - - - Common Stock 3,120,000 3,120,000 3,120,000 Retained Earnings 101,793,000 110,551,000 103,879,000 Treasury Stock -31,554,000 -28,352,000 -22,684,000 Other Stockholder Equity -13,199,000 -14,901,000 -13,165,000 Total Stockholder Equity 60,160,000 70,418,000 71,150,000 Net Tangible Assets -24,974,000 20,737,000 23,757,000

Explanation / Answer

1. cost of debt (Kd) in lakhs

interest long debt interest/ long debt

1/3/16 5.52 128.57 4.29%

1/1/17 7.26 224.42 3.23%

31/12/17 9.34 306.75 3.04%

average cost of debt (Kd) = (4.29+3.23+3.04) / 3 = 3.52%

2.

cost of equity (Ke) in lakhs

net income equity net income / equity

1/3/16 54.09 711.5 7.6%

1/1/17 165.04 704.18 23.43%

31/12/17 13 601.6 2.17%

average cost of equity (Ke) = (7.6 + 23.43 + 2.17) / 3 = 11.06%

3.

longterm debt equity total wt.debt wt.equity

3/1/16 128.57 711.55 840.12 0.1806 0.8193

1/1/17 224.42 704.18 928.6 0.2416 0.758  

31/12/17 306.75 711.5 1018.25 0.30 0.70

average weights = 0.24 0.76

WACC = Kd * wt.debt + Ke * wt.equity = 0.24*3.52% + 0.76*11.06% = 9.25%

note:-

for determining WACC Rf and Rm irrelevant and sum can be done in other way i.e. for each year WACC to be determined and then average of 3years WACC can also be taken where the answer differs.

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