Corporate finance

The following questions should be answered using Excel. You should submit, via Canvas, a well
formatted Excel file containing the various spreadsheets that contain your answers. The presentation of
your answers should make your procedures/methods easy to follow and should present the inputs and
equations used in your calculations.
1. (15 points) Based on the annual income statements and balance sheets of Costco Wholesale
Corporation in 2018 and 2019 (ticker symbol: COST) found on
http://morningstar.com, calculate the
annual rate of growth (% change) in revenue, gross profit, operating income, net income, and total
assets. Additionally, calculate the Costco’s gross margin (gross profit/revenue), operating margin
(operating profit/revenue), profit margin (net income/revenue), asset turnover ratio (revenue/assets),
operating return on assets (OROA = operating income/assets), and return on assets (ROA = net
income/assets) for fiscal year 2018 and 2019.
Based on your calculations: What do we learn about
Costco’s ability to control their expenses in 2019 compared to 2018? What do we learn about Costco’s
ability to generate revenue from their assets in 2019 compared to 2018? What do we learn about
Costco’s ability to generate profits from their assets in 2019 compared to 2018? (Maximum of two
well-written sentences per question).
2. (5 points) Calculate the difference between the present value of $200 per year cash payments for the
next 40 years and the present value of $200 per year cash payments in perpetuity. Assume in either
case, the first payment occurs one year from today and that the appropriate discount rate is 8%/year. The
difference in the present value of these two streams of future cash payments that you calculated equals
the present value of cash payments over what period of time?
3. (5 points) What is the present value of the following series of cash payments: $8,000 per year for
four consecutive years starting one year from today, followed by annual cash payments that increase by
2% per year in perpetuity (i.e. cash payment in year 5 is $8,000*1.02, cash payment in year 6 is
$8,000*1.02
2, etc.)? Assume the appropriate discount rate is 5%/year.
4. (5 points) Use
Goal Seek in Excel, to solve for the yield to maturity (market rate of return) on a
corporate bond with a coupon rate of 4% per year, a maturity of 20 years, and a market value (price) of
$1,210. Assume semi-annual coupon payments and a maturity payment of $1,000 per bond.
5. (15 points) Use the dividend discount model to value a share of Toyota’s stock (ticker symbol: TM)
as of December 31, 2020. In your application of this model, use the data provided on the most recent
Toyota Value Line report (history of their annual dividend payments, forecasts of future annual dividend
payments, past and forecasted growth rates in dividends, and Value Line’s estimate of Toyota’s equity
beta). Given all of the dividend data (historic and forecasted) presented in the Value Line report,
explain, in one sentence, the logic you used to estimate the expected future constant growth rate in
dividends in perpetuity (g).
Since Toyota is a non-US firm, dividends per share on Value Line are referred to as Gross Dividends Declared per ADR. For
directions on how to access Value Line Reports via the SU website, see the Website Instructions document on Canvas.
6. (15 points) Estimate Amazon’s (ticker symbol: AMZN) weighted average cost of capital (WACC).
For each input used in your estimation of Amazon’s WACC, explain what data was retrieved from
what source on what date.
See my estimation of Weyerhaeuser’s WACC (on Canvas) as a guide as
well as the document entitled Website Instructions also available on Canvas.

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