Case Studies in Finance – Week 3 Discussion
Title Book: Case Studies in Finance (8th ed)
Authors: Robert F. Bruner, Kenneth Eades, and Michael Schill
Publisher: McGraw Hill
Case 12 – H. J. Heinz: Estimating the Cost of Capital in Uncertain Times
An analyst at the H. J. Heinz Company is evaluating the company’s weighted average cost of capital (WACC) in light of recent changes in the market. By evaluating the impact of market changes on the WACC, the case provides a vehicle for not only exploring the WACC calculation but also for examining the implicit assumptions that make the WACC a useful discount rate in corporate settings. The case also draws attention to some of the more challenging issues that are often overlooked.
As you review the case study in the text book, you will note that an analyst at the H. J. Heinz Company is evaluating the company’s weighted average cost of capital (WACC) in light of recent changes in the market and needs to calculate a reasonable WACC for the company’s North American Consumer Products division. One of the many challenges he faces with this task is accounting for recent changes in estimates regarding market risk premium.