ESTIMATING WALMART'S

COST OF CAPITAL
PRESENTED BY: GROUP 10
MAHIMA SIKHWAL - UM22283
MAYURESH - UM22284
MANI SHANKAR - UM22285
MANISH SATAPATHY - UM22286
NIKHIL LENKA - UM22289
PREETISH ROUL - UM22293
ROHAN KABRA - UM22298
ROHIT SINGH - UM22299
SONAL MADAN - UM22301
SOUMYA - UM22303
AGENDA
01 INTRODUCTION 05 COST OF EQUITY

02 FINANCIAL PERFORMANCE
06 WEIGHT OF CAPITAL

03 OBJECTIVE OF THE PROBLEM

04 COST OF DEBT
08 Conclusion
 INTRODUCTION
Walmart, a global retail giant founded in 1962 by Sam Walton, has evolved
into one of the world's largest and most influential corporations.
Headquartered in Bentonville, Arkansas, Walmart operates an extensive
network of discount department stores, hypermarkets, and grocery stores in
numerous countries. Renowned for its "everyday low prices" strategy, Walmart
has redefined retail dynamics and supply chain management, impacting both
local communities and global markets. Its innovation in logistics, vast product
assortment, and digital expansion have solidified its position as a dominant
force in the retail sector, shaping consumer expectations and transforming the
way people shop.
FINANCIAL
PERFORMANCE (2023)

MARKET CAP - 422.8

NET PROFIT - 11.29

REVENUE - 611.29
BN USD
CASH & CASH
EQUIVALENTS - 8.84
BN USD
OBJECTIVE OF THE
PROBLEM
The problem aims to estimate Walmart Inc.'s cost of capital. Within an
executive education program, Dale and Lee, technology senior managers,
are tasked with applying their knowledge to estimate this cost. The cost of
capital is vital for companies as it signifies the return required for capital
projects. By establishing this, Walmart can set a hurdle rate for evaluating
potential investment profitability. To achieve this, Dale and Lee gather
Walmart's financial information, analyze its capital sources (debt, equity,
retained earnings), and assign costs. They consider debt costs via market
interest rates and determine equity costs by assessing risk and expected
investor returns. The goal is a comprehensive cost of capital estimation,
aiding informed capital investment decisions for project profitability and
efficient resource allocation, optimizing Walmart's capital structure for
shareholder value maximization.
COST OF DEBT
The cost of debt refers to the interest paid on liabilities like bonds
and loans. For Walmart's cost of debt calculation, a bond's face
value is assumed at $100, with a trading price of $136.38 (trading
at a premium). The bond's coupon rate is 7.55%, maturing in 11
years. Using these inputs, the yield to maturity is computed as
3.48% using the formula for pretax cost of debt. Additionally, the
commercial paper coupon rate is 2.73%, and the percentage of
interest paid to total debt is calculated at 3.69%. These
calculations provide insights into Walmart's effective interest rate
and its debt-related financial dynamics.
COST OF DEBT
COST OF EQUITY
The cost of equity signifies the return a company requires to assess if an investment meets its
capital return criteria. It's a benchmark for the necessary rate of return in capital budgeting. It
represents the compensation demanded by the market for holding an asset and taking on
ownership risk. The widely-used capital asset pricing model (CAPM) calculates the cost of equity.
To calculate Walmart's cost of equity, factors like the risk-free rate (10-year treasury bond return
of 1.97%), adjusted Beta (volatility compared to the market, 0.71), and market return (S&P 500 at
12.98%) are considered. Using the CAPM formula, Rf + Beta*(Rm-Rf), Walmart's cost of equity is
determined to be 9.79%. This provides insight into the return investors expect from Walmart's
equity while accounting for risk and market conditions.
WEIGHT OF CAPITAL
To calculate the different weights of capital such as equity, commercial paper and
different components of debt we have taken their market values. Market value of
equity is simply the number of shares of Walmart multiplied by its share price given
as $2,82,955.60. Similarly, market value of bond and commercial paper is given as
$1,363.80 and $5,225.00 respectively. The weights of equity and debt is calculated
to be 83.14% and 14.93% respectively.
WACC
The Weighted Average Cost of Capital (WACC) is a financial metric that represents the average
rate of return a company needs to generate in order to satisfy its investors and creditors. It is a
weighted average of the cost of equity and the cost of debt, taking into account the proportion of
each in the company's capital structure. WACC is commonly used as a hurdle rate against which
companies and investors can gauge the desirability of a given project or acquisition which is
calculated by multiplying the cost of equity by the proportion of equity in the capital structure,
adding it to the cost of debt multiplied by the proportion of debt, and adjusting for the tax rate.
Using this formula, We*Ke+Wd*Kd*(1-Tax Rate) we can calculate Walmart’s WACC. As we
already have the information about the weight of capital and cost of capital by simply using this
formula, we found the WACC of Walmart to be 8.58%.
CONCLUSION
The Weighted Average Cost of Capital (WACC) for Walmart is 8.58%. This
signifies that Walmart must generate a minimum return of 8.58% on its investments
to meet investor and creditor expectations. This rate represents the necessary
minimum return to maintain its current capital structure. The WACC acts as a
benchmark for project feasibility; if a project's expected return is lower than the
WACC, it may not cover capital costs and might not be financially viable. Moreover,
WACC is used in valuation methods like discounted cash flow analysis to
determine present value. A higher WACC leads to a lower present value of cash
flows, indicating a lower company valuation. In essence, Walmart's 8.58% WACC
guides investment assessment and influences company valuation.
THANK YOU!