Essay about Heinz: Estimating the Cost of Capital
Cost of Capital in Times of Uncertainty
Group 10
Alan Ho 20349978
Saraniya Paramanathan 20332829
Christopher Abeleda 20335744
Nathanael Cheung 20345672
Reuban Nadesan 20346511
To: Board of Directors Committee, H.J. Heinz Company
From: Group 10 Consulting
Date: July 7, 2011

Subject: Weighted Average Cost of Capital Recommendation

Heinz has reached an unstable point in its business cycle and must calculate an appropriate cost of capital during these uncertain times. The cost of capital is an essential measure in determining the cost of a company’s capital structure. It is the …show more content…
The riskfree rate recommended under the CAPM model is the yield on longterm (i.e. 10+ years) Tbills. When choosing the Tbill term, it is important for it to closely represent the time frame used for Heinz’ required rate of return.
A common practice to determine the firm’s beta is to draw from historical data from published sources or compare numbers to competitors. In this case, Heinz can compare to Kraft, Campbell Soup and Del Monte and use professional judgement in determining the stock’s sensitivity to the market. A stock’s beta can be determined using a formula as well.
As mentioned earlier, the theory uses a forwardlooking risk premium which reflects current market conditions that are sensitive to changes. Although this is the case, research on various companies demonstrates that experts infer future…

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