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¶ … MSN Moneycentral (2011), the beta for Wal-Mart (WMT) is 0.33. This indicates that the company has a very low degree of correlation with the broader market, and is a less volatile investment than the broad market.
According to Yahoo! Finance (2011), the rate of return on a one-year U.S. Treasury bond is 0.318%. It is assumed that the market risk premium is 7%. This assumption means that the market rate of return is traditionally 7.318%.
The cost of equity for Wal-Mart is therefore as follows:
Rj = RF + ?j [RM - RF]
Rj = 0.318 + 0.33 (7)
Rj = 0.318 + 2.31
Rj = 2.628%
The cost of equity is lower than I had expected. Wal-Mart is a more stable company than I had thought. The beta is very low, indicating that Wal-Mart does not have much volatility. Most companies, especially retailers, struggled during the past recession and I would have thought that this would affect Wal-Mart as much...
Knowing this, it is not a surprise that Wal-Mart has a cost of equity much lower than the average firm. Being as successful as it is, and operating in both major Western markets and in China, Wal-Mart is evidently well insulated from financial crises. Thus, it makes sense that Wal-Mart has a lower cost of equity than most other companies.
3. Some of the other companies that can be compared to Wal-Mart are Target (TGT), Costco (COST) and Amazon (AMZN), each of which is a major competitor for one of Wal-Mart's businesses. According to MSN Moneycentral (2011), Target has a beta of 0.93; Costco has a beta of 0.76 and Amazon has a beta of 1.16. Each of these companies has a higher cost of equity than Wal-Mart, because of these higher betas. This is logical. Wal-Mart is a major competitor in each of these businesses, as…
Wal-Mart cost of capitalSlide 1: The WACC is the weighted-average cost of capital. The capital structure of a firm consists of two main components � debt and equity. Wal-Mart does not have preferred shares, so they can be excluded from this calculation. The cost of equity and cost of debt are different, so the weighted average cost of capital is the weighted average of the cost of equity and the
WMT Equity The beta for Wal-Mart, according to MSN Moneycentral, is 0.29. According to Yahoo! Finance the yield to maturity on a Treasury bond that is due 15-Mar-12 is 0.296%. We will assume a market risk premium of 7%. With these figures, the cost of equity for Wal-Mart can be calculated using the capital asset pricing model (CAPM): Ra = RF + ? (Rm -- Rf) Ra = 0.296 + (.29)(7) Ra = 2.326% This
41 in the next three years. The current price for Wal-Mart implies strong growth prospects. The company does have a sound strategy to retain its new customers and refocus growth efforts on less-saturated markets overseas. In short, while there can be little doubt as to Wal-Mart's operational excellence, it is not necessarily a great investment. Growth has in recent years been of the slow and steady variety. The company's present valuation