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H. J. Heinz Estimating The Cost Of Capital In Uncertain Times Case Solution & Answer

H. J. Heinz Estimating The Cost Of Capital In Uncertain Times Case Study Analysis

About H. J. Heinz

  1. J. Heinz is one of the valuable and leading US based food processing companies, whichwas founded in 1869 by Henry J. Heinz. The company is composed of multiple food brand, and provides a variety of quality foods while competing with rival companies from the same industry on various fonts. Heinz divided its business segments into different markets, which include: North America, US Foodservice, Europe, Asia and rest of the world. In 2010, the company became a food giant with 10 billion dollar revenues &29600 employeesthroughout the globe. Furthermore, the company was highly concerned about expanding into emerging markets, which in turn tended to generated 30 percent of recent growth & comprised of 15 percent of total sales. The continued growth and success of the company was followed by the robust expansion, customer-centric culture.

Problem statement

Given the ongoing market uncertainty as well as the recent changes in the conditions of market; an internal financial analyst at Heinz is concerned about estimating the weighted average cost of capital of the company.

Yields on the two representative

As per the information provided in the case; the yields on two representatives are calculated for the year 2009 and 2010. For 2010, the price of short term and long term bond are: $113.7 and $116.9, respectively, with the coupon rate of 6.63 percent for short term bond and 6.75 percent for long term bond. The years to maturity of long term and short term bound is 22 years and 2 years, respectively. The coupon payment is calculated by multiplying thecoupon rate with the face value of the bond and then divided by the semiannual coupons. Thus, the coupon payment of the short term and long term bond are: $3.3125 and $3.375. The yield of short term and long term bonds are calculated to be -0.2073 percent and 5.4251 percent, respectively(Luehrman, 2016)………………………….

 

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