Following the example in class, compute the weighted average cost of capital for your assigned companies, either office supply firms or department stores.  (Your group

will be assigned to analyze one or the other.)  Then write a brief memo to the CFO for whom you work. (Your group is assumed to work for either John J. Mahoney of

Staples or Wesley S. McDonald of Kohl’s, as assigned.)

All team members should participate in completing this assignment.  Submit one write-up per group, both electronically and as hardcopy.

Additional Instructions

WACC Calculations
•    All data were collected on 1 November 2011.
•    Loans:
o    Loans and bonds are both loans to corporations. In calculating WACC, treat a loan just as you would a bond.
o    Not all details on outstanding loan amounts are available. Assume the amount outstanding is the maximum amount shown.  All loans are floating-rate loans tied

to LIBOR, the London Inter-Bank Offered Rate.  LIBOR + 50 means the interest rate on the loan equals LIBOR plus 0.50%.  (0.50% = 50 basis points; 1.00% = 100 basis

o    For loans tied to LIBOR, the market value of a loan is equivalent to the loan’s book value.
•    Bonds:
o    The figure reported in the “yield” column is the yield to maturity on the bond.
o    Bond prices are reported as a percent of the bond’s $1,000 face value and without the percent sign.  A bond price of 98.25 means $982.50; a price of 102.05

means $1,020.50.
•    Additional market data on 1 November 2011
o    Marginal tax rates:
?    SPLS, OMX, DDS, KSS:  40%
?    ODP:  0%
o    Market risk premium, [ E(RM) – RF] :7.5%
o    Historical spread between 20-year US Treasury bonds and 1-year US Treasury bills:   2.3%
o    Interest rates:
?    LIBOR (3-month):  0.50%
?    20-year US Treasury bonds:   2.90%
o    Stock prices:   SPLS, $14.27;  ODP, $2.16;  OMX, $4.88;   DDS, $51.20;   KSS, $53.18
•    Stock indexes representing the price of the market portfolio:
o    S&P 500: SP 500
o    Dow Jones Total Stock Market Index: DJTSMI
Compute betas for each stock using both indexes; also, compute two WACCs for each company using both betas.
•    Present all your beta calculations in one worksheet; present all your WACC calculations in another. Please format each worksheet to print out on one page.

•    Use proper memo heading (see the sample memo posted at the Moodle site)
•    The first paragraph should be a one or two sentence introduction.
•    In the second paragraph explain carefully the procedure you used to compute the WACCs. Note whether the choice of market portfolio (SP500 or DJTSMI) makes a

significant difference.
•    In the third paragraph explain the purposes to which your WACC estimates may or may not be put. Use examples relevant to your companies.
•    In the fourth paragraph compare and contrast the WACC estimates for your companies.  Discuss what factors might account for their similarities and differences.

Mention whether your company’s WACC is better or worse than the others.
•    Attach the worksheets showing your WACC and beta calculatio
Debt Overview
Dillard’s Inc (DDS)
Issuer Description
Description:        DILLARD’S INC
Immediate Parent:        –
Ultimate Parent:        –

Debt Structure
Name    #    Amount Issued    Amount Outstanding
Loans    1    1,200,000,000    –
Bonds    7    850,000,000    649,627,000
Total    8    2,050,000,000    –

Issue Date                        Purpose            Amount        Facilities
2007/05/03 Dillard’s Inc                        General Purpose            1,200,000,000 USD        1

Facility Type    Maturity Date    Facility Amount (USD)    Country    Currency    Issue Date    Base Rate/Spd

Revolver/Line >= 1 Yr.    12-Dec-2012    1,200,000,000    United States    USD    03-May-2007    LIBOR+125

Total                                    1,200,000,000 USD        1

Currency                        Issues            Outstanding            Issued
U.S. Dollar                        7            649,627,000            850,000,000
Description        Maturity Date    Amount Outstanding (USD)        Cpn Class    Country    Issue Date    Debt Type                Yield

Yld Date    Price
DDS 8 12/10/01        01-Oct-2012    55,370,000        Fixed Coupon    United States    13-Oct-1992    Debenture                9.003

01-Oct-2012    99.000
DDS 7 18/01/15        15-Jan-2018    92,873,000        Fixed Coupon    United States    12-Jan-1998    Sr Note                7.809

15-Jan-2018    94.000
DDS 7 18/08/01        01-Aug-2018    160,959,000        Fixed Coupon    United States    07-Aug-1998    Sr Deb                7.656

01-Aug-2018    97.000
DDS 8 23/01/01        01-Jan-2023    44,800,000        Fixed Coupon    United States    13-Jan-1993    Sr Deb                8.254

01-Jan-2023    97.000
DDS 8 26/07/15        15-Jul-2026    96,000,000        Fixed Coupon    United States    17-Jul-1996    Debenture                8.564

15-Jul-2026    93.000
DDS 8 27/05/15        15-May-2027    53,800,000        Fixed Coupon    United States    15-May-1997    Sr Note                8.542

15-May-2027    93.000
DDS 7 28/12/01        01-Dec-2028    145,825,000        Fixed Coupon    United States    07-Dec-1998    Sr Note                8.060

01-Dec-2028    90.000
Total                        7            649,627,000            850,000,000

Shares Outstanding    47,457,000

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