Discussion Activity: Analyzing WACC
Initial Post: 11/19/21
Response Posts: 11/20/21
Chapter 10 introduced the WACC which is the weighted average cost that a company pays for capital
raised. In essence, it is the expected return and the minimum rate of return at which value is produced
for investors. As such, WACC is used as a tool to determine whether to invest. Using the company
selected for the “Are CEOs Overpaid?” and Beta & Risk discussion activities, and the data gathered,
for this discussion activity you will include WACC as an additional tool to determine 1) if you believe the
CEO is overpaid, and 2) if you would consider investing in the company. (Note: if you did not complete
either of the discussion activities, you will have to complete 1 & 2 below for both companies).
For this activity please complete the steps below.
Using the assigned competitor, complete the following activities that were required for the “Are CEOs Overpaid?” and Beta & Risk discussion activities.
Access https://aflcio.org/paywatch/highest-paid-ceos and retrieve the detailed CEO compensation.
Research the historical stock prices for 2015-2020 or 2021 depending on the years used for the “Are CEOs Overpaid?” discussion activity. Selecting the same dates used when gathering data for your company, record the stock price for the last five years. Then calculate the percentage change in the stock price for each year.
Access Stock Betas List for S&P 100 Large-Cap Stocks (abg-analytics.com) to retrieve the company’s beta. If the company is not listed, you can retrieve the beta from a financial portal such as Yahoo Finance.
Create a table that can be used to compare and contrast the data gathered for both companies. The table should include the following:
company name, stock symbol, and year the company went public
CEO name and when assumed the role
a detailed breakdown of the CEO compensation
percentage change in the stock price over the past 5 years
WACC including the components of debt, equity, and preferred. Since all students do not have free access to financial portals which contain the WACC details, this data will be provided to each student. (check your email).
any additional quantitative data you would like to include for the analysis.
Using all data gathered for your company and the competitor along with any relevant information presented in Chapters 1-10, answer the following questions.
Do you think that the CEO for your company is overpaid? Defend your response by
comparing and contrasting the data presented in the table.
discussing the financial implications for the business such as the impact debt has on risk and the influence on the stock price.
Is your response to Part a consistent with how you responded to the question when you completed the previous discussion activities? If not, explain what new information swayed you into changing your response. Otherwise, explain what new information supports your original response.
After conducting additional research and gathering data for this activity, if given the opportunity, would you consider investing in the company? Explain.
Post your data, including the table, and responses to the questions to the discussion forum in Bb Learn. It might be ideal to attach as a Word document or Google Doc and include the link as your submission (ensure that peers only have the right to view).
After you have completed your initial post, review peer responses, and select two peers to submit a response post. The post should:
Compare and contrast your company with that of your peer in terms of
WACC and the weights and costs of each component.
perceived risk as reflected by the beta and WACC.
Discuss if you agree or disagree with your peers’ response as to whether or not the CEO is overpaid. Defend your position.
Discuss what relevant information you would add to the discussion or communicate if there is additional information that you would like to know about the company.
Please refer to the rubric for the scoring criteria.