To determine the cost of debt

To determine the cost of debt

Question 2 – 50%
Henkel does not carry debt beyond five years. To determine the cost of debt:
a. For Henkel AG, which Treasury rate at which maturity is most
appropriate to use in valuing the cost of debt of the company?
b. Add a default premium based on the company’s debt rating by
Standard & Poor’s. Yields by credit rating can be found on the
“Yields” worksheet of the “Select Market Data” spreadsheet.
Henkel reports its debt rating on its investor relations web site at
www.henkel.com/investor-relations/credit-ratings-11952.htm. If
the company’s rating is between reported portfolios, interpolate
between the nearest ratings.
c. Determine Henkel’s marginal tax rate, use the tax reconciliation
table in the annual report. Set the marginal tax rate equal to the
“Tax rate on income.”
d. To complete the cost of capital, weight the after-tax cost of debt
and cost of equity using the company’s year-end capital structure
(found in the “Select Market Data” spreadsheet).

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By admin in Essays on October 24, 2015