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BAE Systems plc
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==== Calculation of the discount rate (WACC) ==== {| class="wikitable" !WACC ! !Notes |- |'''Weights''' | | |- |Total Debt |6610 | |- |Market Cap |29363 | |- |Total |35973 | |- |Wd |18% |Weight of debt calculated as the total debt as a proportion of total capital. |- |We |82% |Weight of equity calculated as the market cap as a proportion of total capital |- | | | |- |'''Debt''' | | |- |Total Debt |6610 |Cost of debt was calculated by taking interest expenses from the income statement and dividing this by the total debt making note of the fact that debt is a tax deductable item. |- |Interest Expense | -233 | |- |Rate |3.5% | |- |Effective Tax Rate |12% | |- |Rd(1-t) |3.1% | |- | | | |- |'''Equity''' | | |- |Risk Free Rate |4.05% |Capital asset pricing model was used to calculate the cost of equity. Risk free rate of the US Treasury 10 Year was used. |- |Beta |0.57 |Beta for the stock was found from Yahoo Finance |- |Market Rate |10% |Current market rate was calculated as the average returns of the S&P 500 over the past 50 years. |- |Re |7.4% | |- | | | |- |'''Discount Rate''' |'''6.6%''' |This is the value used for the WACC |- |'''Perpetuity Growth Rate''' |'''2.0%''' |A perpetuity growth rate of 2% was used as this is sufficiently low to ensure that the company is not projected to increase in size far faster than the global economy in the very long term. |}
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