Heinz: Estimating the Cost of Capital Essay

2319 Words Oct 21st, 2013 10 Pages
H.J. Heinz Company Case:
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
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Subject: Weighted Average Cost of Capital Recommendation
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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
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2.0 Yield-To-Maturity and Cost of Debt (Fiscal Year 2009 and 2010)

To determine the yield on the two representative outstanding Heinz debt issues as of the end of April 2010, many factors were taken into consideration. Please refer to Appendix 4 for calculations.
The first bond that Sheppard considered representative of the company’s outstanding borrowings was a note due in 2032. This note had a coupon rate of 6.75% and a maturity date of March 15, 2032. The market price of this bond is $116.9, and a face value of $100. The yield-to-maturity is 5.53%.
The second bond that Sheppard considered representative of the company’s outstanding borrowings was a note due in 2012. This note had a coupon rate of 6.625%, and a maturity date of October 15, 2012. The market price of this bond is $107.5, and a face value of $100. The yield-to-maturity is 1.56%.
To determine the yields for the two representative outstanding Heinz debt issues as of the end of April 2009, the same calculations were done using 2009 numbers instead. The first bond that Sheppard considered representative of the company’s outstanding borrowings was a note due in 2032. This note had a coupon rate of 6.75% and a maturity date of March 15, 2032. The market price of this bond is $91.4, and a face value of $100. The

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