Calculation of Net Present Value and Intrinsic Value of Walmart Inc. and Sysco Corp

Running head: REPORT 0
PRINCIPLE OF FINANCE
MARCH 11, 2020
STUDENT DETAILS:

REPORT 1
Contents
Answer one:................................................................................................................... 2
1. Calculation of average cost of capital for evaluation of project of Duronic plc. –.....................2
2. Calculation of Net present value @ 5.16% -...................................................................3
3. Calculation of Net present value @6% -.......................................................................4
Answer two:................................................................................................................... 5
1. Calculation of intrinsic value of Walmart Inc. and Sysco Corp. -.........................................5
2. Valuation and assumption of dividend discount model –...................................................8
3. Suggestions for buying or selling –..............................................................................9
Answer three:............................................................................................................... 10
References................................................................................................................... 14
Appendix.................................................................................................................. 16

REPORT 2
Answer one:
1. Calculation of average cost of capital for evaluation of project of Duronic plc. –
Calculation of Weighted average cost of capital (WACC) -
Particulars Rate
Market
value
Market
value
weight WACC
Cost of equity (Ke) 4.70% 150 0.47 2.23%
cost of preference shares (Kp) 5.81% 128.65 0.41 2.36%
Cost of debt (Kd) 4.80% 37.8 0.12 0.57%
Weighted average cost of
capital (WACC) 316.45 1.00 5.16%
Working note:
Calculation of cost of equity –
P0 = D1 / r-g
r = (D1/P0) + g
r = (0.2222/6) + 0.01
r = 4.70%
Calculation of dividend growth rate –
Dividend growth rate = (0.22-0.12)/10
Dividend growth rate = 1%

REPORT 3
Calculation of preference shares-
Cost of preference shares (Kp) = Annual preference Dividend/market price per share
Cost of preference shares (Kp) = 0.09/1.55
Cost of preference shares (Kp) = 5.81%
Calculation of cost of debt -
Cost of debt (Kd) = Interest rate (1-tax)
Cost of debt (Kd) = 6% (1 - .20)
Cost of debt (Kd) = 4.80%
As per the view of CEO, the weighted average cost of capital should be 6%. On the other hand,
as per the view of project manager, the weighted average cost of capital should be 5.16%. It is
found that most appropriate cost of capital is 5.16%.The reason is that the company's WACC can
be used to estimate the expected costs for all of its financing. The high weighted average cost of
capital (high WACC) is normally the sign of higher risk related to the functions of company
(Khan, Javaid and Khan, 2018). The investor tends to need the additional return to
counterbalance additional risks. On the other hand, the concept behind making investment in the
undervalued stock is that price of the stock is more likely to increase over the period because this
is being sold for below worth (Santandrea, et. al, 2017). The project using less cost of capital will
be less risky. In this way, the most appropriate cost of capital is 5.16%.
2. Calculation of Net present value @ 5.16% - (Refer appendix 1)
From the calculation, it is found that net present value of company is $293.12. It is positive net
present value. The company should accept this project. The project having positive net present