1. A)
GE Cost of Capital B) C)
Capital
Source
Amount
Percent
Weight
Before-Tax
Cost
After-Tax
Weighted
After-Tax Cost
Short-term Debt
$2,642
0.60%
6.3%
3.7%
.02%
Long-term Debt
$709
0.17%
6.7%
4.0%
.01%
Equity
$429,906
99.23%
14.1%
13.99%
Total Capital
$433,257
100.0%
14.02%
GE CAPM = Risk Free Rate + (Market
Risk Premium x Beta) D) E) F)
GE CAPM = 6.13% + (7.01% x 1.13) A)
Excludes GE Capital (Different Risk Profile) B)
At Book Value Except Equity
(3,327 Million $132 13/16) C)
Tax Rate is 41% D)
Wall Street Journal Nov, 4, 1999 E)
Stocks Bonds Bills & Inflation (SBBI) ‘99 Yearbook F)
Morgan Stanley (20 Year) •
Need to Understand Target Specific Situation to Correctly Determine WACC •
Use GE’s WACC as an Approximation When Target Has Same Level of Industry Risk