ASSIGNMENT l WHAT IS STRATEGIC MANAGEMENT.

Running head: STRATEGIC MANAGEMENT
Strategic Mangement
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Name of the Student:
Name of the University:

STRATEGIC MANAGEMENT 2| P a g e
Table of Contents
Question
1.................................................................................................
............3
Question
2.........................................................................................................
....8

STRATEGIC MANAGEMENT 3| P a g e
Solution to Q1
Company 1 - Columbia Sportswear Company
1. Risk Free Rate (Rf) = 1.734%
2. Market Value of Equity = 6.85 Billion
Enterprise Value = 6.69 Billion
Cash = 524.35 Million
Beta = 0.68
3. Yield to Maturity (Bonds) (Kd) = 1.74%
4. Weights for Equity & Debt based on Market Value:
Equity = 6.85 Billion
Debt = 0.40587 Billion
Weight of Equity (We)= 6.85/6.85+.40587
= 0.944
Weight of Bonds (Wd)= 0.056
5. Company’s Cost of Equity using CAPM:
Risk free rate (Rf) = 1.734%
Market Risk Premium = 5%
Beta = 0.68

STRATEGIC MANAGEMENT 4| P a g e
Cost of Equity (Ke) = Rf + (Rm – Rf) * Beta
= 1.734% + 5% * 0.68
= 5.134%
6. Effective (after tax) Cost of debt capital:
Cost of Debt (after tax) = Kd (1-t)
= 1.74 (1 - .35)
= 1.131%
7. Company’s Weighted Average Cost of capital (WACC):
As calculated above:
Cost of Equity (Ke) = 5.134%
Cost of Debt (after tax) (Kd) = 1.131%
Weight of Equity (We) = 0.944
Weight of Debt (Wd) = 0.056
Weighted Average Cost of Capital (WACC) = Ke * We + Kd * Wd
= (5.134 * 0.944) + (1.131*0.056)
= 4.91%
8. Revised Weighted Average Cost of Capital (WACC) considering Net Debt:
Net Debt = Enterprise Value – Value of Equity
= 6.69 – 6.85
= -0.16 Billion