Choose a non-financial company, non-utility company, and determine the weighted

Question

Choose a non-financial company, non-utility company, and determine the weighted average cost of capital for that company. Clearly list all assumptions that you make for your calculation, and make sure the assumptions are realistic. One of the assumptions that you may (and should use) is that the debt of the company is all long-term debt, and is all the same type of long-term debt (in other words, find one specific bond issue for the company and assume that all of the debt has the same characteristics as that one bond issue). www.finance.yahoo.com is a good place to start.

Explanation / Answer

Company - Apple

Cost of Debt

The cost of debt is the effective rate that a company pays on its total debt.

As a company acquires debt through various bonds, loans and other forms of debt, the cost of debt is a useful metric. It gives an idea as to the overall rate being paid by the company to use debt financing. This measure is also useful because it gives investors an idea as to the riskiness of the company compared with others. The higher the cost of debt, the higher the risk.

8. Cost of debt (before tax) = Corporate Bond rate of company

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