Cost of Capital, Capital Structure, and Capital Budgeting Analysis – McKesson Corporation In this project, you are supposed to be a financial manager to apply the knowledge learn from Financial Management

Cost of Capital, Capital Structure, and Capital Budgeting Analysis – McKesson Corporation

In this project, you are supposed to be a financial manager to apply the knowledge learn from Financial Management to estimate cost of debt, preferred stock and common equity, capital structure, and weighted average cost of capital (WACC) for a publicly traded corporation of your choice. You will use the estimated WACC as the discount rate to perform capital budgeting analysis for a hypothetical project (the data is given below) considered by the selected company McKesson Corp, and decide whether the project should be taken.

Estimate Capital Structure

– Estimate the firm’s weights of debt, preferred stock, and common stock using the firm’s balance sheet (book value) using the most recent year data.

– Estimate the firm’s weights of debt, preferred stock, and common stock using the market value of each component using the most recent year data.

Compute Weighted Average Cost of Capital (WACC)

– Estimate the firm’s before-tax and after-tax component cost of debt; (Note: If the information about the current corporate tax rate is not available, you can estimate the tax rate based on the firm’s historical tax payments).

– Estimate the firm’s component cost of preferred stock if the firm has issued preferred stocks.

– Use three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the component cost of common equity for the firm.

– Calculate the firm’s weighted average cost of capital (WACC) using the market-based capital structure weights obtained from Step (3).

Capital Budgeting Analysis

– Using the WACC obtained from in Step (4) as the discount rate for this project, apply capital budgeting analysis techniques (NPV, IRR, MIRR, PI, Payback, Discounted Payback) to analyze the new project.

– Perform a sensitivity analysis for the effects of key variables (e.g., sales growth rate, cost of capital, unit costs, sales price) on the estimated NPV or IRR in order to demonstrate the sensitivity of the model. The Scenario analysis of several variables simultaneously is encouraged (but not required). A document Sensitivity Analysis using Data Table in Excel is provided for the introduction of the Data Table function in Excel.

– Discuss whether the project should be taken and summarize your report.

Do not directly copy any contents or results from any other sources. List the cited references in your project.

Cost of Capital, Capital Structure, and Capital Budgeting Analysis – McKesson Corporation In this project, you are supposed to be a financial manager to apply the knowledge learn from Financial Manage
1.0 – Cover Page Financial Analysis Report McKesson Corporation Financial Management, FINC 6352 – 15408 Prof. Xi Ning Friday, July 29, 2022 Group 13 Analyst: Erica Newman & Vannesa Dickson source: videoblocks.com 1.1– Table of Contents 1.0 – Executive Summary 2 2.0 – Financial Ratio Analysis 4 3.0 – Estimated Capital Structure 6 4.0 – Weighted Average Cost of Capital (WACC) 7 5.0 – Cash Flow Estimation 9 6.0 – Capital Budgeting Analysis 10 7.0 – Project Recommendation 12 8.0 – References 13 9.0 – Appendix 14 1.0 – Executive Summary McKesson Corporation provides pharmaceuticals and medical supplies in the United States and internationally. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical medications, and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacy chains in Europe and Canada, as well as supports independent pharmacy networks in North America and Europe; and supplies integrated pharmacy management systems, automated dispensing systems, and related services to retail, outpatient, central fill, specialty, and mail order pharmacies. This segment serves retail national accounts, including national and regional chains, food/medication combinations, mail order pharmacies, and mass merchandisers; and institutional healthcare providers, such as hospitals, health systems, integrated delivery networks, and long-term care providers, as well as offers its services to pharmaceutical manufacturers. Key Metrics Sector Healthcare Industry Pharmaceutical Share Price (07/01/22) $150.85 Target Price $212.35 Upside +41.30% 52 Week Share $114.53 – Price Range: $199.43 Exchange Traded NYSE Ticker MCK Dividend Yield .75% Annual Dividend $1.12 # Shares Out 212m Key Ratio (As of 01 July 2022) Market Cap 31.35B EPS $8.43 P/E 17.54 Beta (5-year avg.) 1.05 Peer Companies: Cardinal Health, Inc. (NYSE:CAH); AmerisourceBergen Corporation (NYSE:ABC) Analysts Erica Newman Vannesa Dickson The McKesson Technology Solutions segment provides clinical, financial, and supply chain management solutions to healthcare organizations. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California. 1.1 – Company Overview 1.2 – Industry Overview 2.0 – Financial Ratio Analysis 2.1 – Liquidity Ratios 2.2 – Asset Management Ratios . 2.3 – Debt Management Ratios 2.4 – Profitability Ratios 2.5 – Market Value Ratios . 3.0 – Estimated Capital Structure 3.1 – Capital Structure Estimation Analysis 4.0 – Weighted Average Cost of Capital (WACC) 4.1 – Component Cost of Debt Estimation 4.2 – YTM –Yield to Maturity Approach 4.3 – Before-Tax Component Cost of Debt 4.4 – After-Tax Component Cost of Debt 4.5 –Component Cost of Preferred Stock Estimation 4.6 – Component Cost of Common Equity Estimation 4.7 – CAPM Cost of Equity 4.7.1 – Bond Yield plus Risk Premium Cost of Equity 4.7.2 – Average Cost of Equity 4.8 – Weighted Average Cost of Capital (WACC) 5.0 – Cash Flow Estimation 5.1 – Depreciation Basis 5.2 Annual Depreciation of the New Project 5.3 Annual Cash Flow Estimate 5.4 – Timeline of Cash Flows . 6.0 – Capital Budgeting Analysis 6.1 Capital Budgeting Analysis Techniques 6.2 Net Present Value 6.3 – Internal Rate of Return 6.4 Modified Internal Rae of Return 6.5 – Profitability Index 6.4 Payback Period and Discounted Payback Period 6.5 – Payback for Project 6.4 Discounted Payback 6.5 – Sensitivity Analysis 7.0 – Project Recommendation 8.0 – References Accounting, F. (2019, March 4). MBA SWOT : Nike in China (Abridged) SWOT Analysis & Matrix – strengths, weaknesses, opportunities & threats. EMBA Pro for Executive MBA Professionals. https://embapro.com/frontpage/swotcase/3775-nike-china World Bank. (2021). Ease of Doing Business. https://www.doingbusiness.org/en/data/exploreeconomies/china 9.0 – Appendix