Finance: WACC Analysis for Exxon Mobil

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Finance
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1FINANCE
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
WACC Analysis..........................................................................................................................2
Cost of Equity..............................................................................................................................2
Cost of Debt.................................................................................................................................3
Weighted Average Cost of Capital..............................................................................................3
Conclusion.......................................................................................................................................3
References........................................................................................................................................4
Appendix..........................................................................................................................................5

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Introduction
The weighted average cost of capital for a firm shows the minimum costs associated for a
company in respect to the share price of the company. The two main components of the weighted
average cost of capital is the weight and costs associated with each of the capital sources such as
the equity financing and the debt financing. The weighted average cost of capital should be at an
optimal risk and the company should optimally decide the level of equity and the level of debt
financing of the company after considering the business and the financial factors of the company.
The WACC for the Exxon Mobil company was derived after taking the costs and weight of each
of the capital financing sources company has deployed in the operations of the company.
Discussion
WACC Analysis
The weighted average cost of capital for a firm could be derived with the help of the
formula Weighted Average Cost of Capital = Weight of Equity* Required Return on Equity+
Weight of Debt* (Cost of debt * (1- Tax Rate)). The weight of equity on the other hand could be
computed with the help of the formula {Return on Equity (Re) = Risk free rate of return+
Beta*(Return on Market- Risk free rate of return)}.
Cost of Equity
The cost of equity for Exxon Mobil was calculated by taking the market risk premium,
the beta of stock and the prevailing 10-year US Treasury Yield. The same has been incorporated
for calculating the current cost of equity for the company. The equity value for the company was
around $ 194,500 stating the overall weight of equity to be around 88.85% in the overall capital
structure of the company (Finance.yahoo.com 2019). The cost of equity was calculated for the