Find the WACC for General Motors. Morningstar Market Cap Net Income Rating Divid

Question

Find the WACC for General Motors.

Morningstar Market Cap Net Income Rating Dividend Yield% 5-Yr Rev CAGR% Med Oper Interest Margin% Coverage P/s P/E D/E General Motors Co Toyota Motor Corp (USD,JPY) Toyota Motor Corp (USD,JPY) Volkswagen AG (USD,EUR) Volkswagen AG (USD,EUR) Volkswagen AG (USD,EUR) Volkswagen AG (USD,EUR) Daimler AG (USD, EUR) Daimler AG (USD,EUR) Bayerische Motoren Werke AG 59,685 100,797 100,797 100,797 100,797 90,450 90,450 67,306 3,122 188,535 1,956,264 188,535 1,956,264 7,193 7,193 7,193 7,193 9,471 9,471 7,578 (USD,EUR) Bayerische Motoren Werke AG 67,306 7,578 (USD,EUR) Bayerische Motoren Werke AG 67,306 7,578 (USD,EUR) Honda Motor Co Ltd (USD,JPY) Honda Motor Co Ltd (USD,JPY) General Motors Co (USD) Tesla Inc (USD) Ford Motor Co (USD) Nissan Motor Co Ltd (USD, JPY) Nissan Motor Co Ltd (USD,JPY) Hyundai Motor Co (USD,KRW) Hyundai Motor Co (USD,KRW) Audi AG (USD,EUR) Flat Chrysler Automobiles NV 12.0 61,234 646,115 61,234 646,115 60,395 54,655 49,971 -1,407 4,410 657,575 657,575 40,328 4,208,889 39,576 4,208,889 2,399 3,105 102.8 69.3 69.3 37,475 35,701 13.3 (USD,EUR) Geely Automobile Holdings Ltd 29,426 7,548 26.0 20.7 727.9 (USD,CNY) Geely Automobile Holdings Ltd 29,426 7,548 26.0 727.9 (USD,CNY) Renault SA (USD,EUR) Industry Average 28,964 4,297 12.9 33,931 445,932 11.3 2544.5 148.9

Explanation / Answer

The formula for WACC = Proportionate equity x Ke + Proportionate debt x Kd

Ke= 1/p/e = 1/8.9= 11.24%

D/E= 1.6:1

Or, debt proportion = 1.6/1.6+1 = 0.62

Therefore equity proportion = 0.38

Market capitalization = $59,685

Total capital= 59,685/0.38 = $157,065.79

Total debt= 157,065.79-59,685= $97,380.79

Interest coverage ratio = 21.4

Net income= 3,122

Interest coverage ratio = EBIT/I

Therefore, 21.4= (3122+I)/I

Or, I=3,122/20.4= $153.04

Interest percentage= 153.04/97380.79= 0.16%

WACC= 0.38 x 11.24% + 0.62 x 0.16% = 4.37%

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