Computation and Analysis of the Weighted Average Cost of Capital of the Limited Brands, Inc.
The Limited Brands, Inc. (the Company) is the known parent company of gigantic stores that cater to women such as Victoria’s Secret, Victoria’s Secret Pink, La Senza, Bath and Body Works, C. O. Bigelow, White Barn Candle Co. and Henri Bendel. It has reported sales of $9,043,000,000 in 2008 and employs more than 90,000 associates throghout the USA alone. The company has reached international markets through its Bath and Body Works and La Senza outlets.
This paper will analyse the capital structure of the Limited Brands, Inc. and how it relates to such components of capital affect the firm’s profitability and growth in today’s economy. The Weighted Average Cost Overview The weighted average cost of capital (WACC) is the cost a company must pay the holders of its debt and equity to finance the assets. Computing the WACC of the Company will first require a computation of the company’s total equity, yield to maturity of debts, cost of equity and the firm’s tax rate.
One of the many variations of the formula for WACC is: [Rd x D/V x (1-5)] + [Re x E/V] Where Rd = Bond’s yield to Maturity (I/Y in Calculator) D = Market Value (Present Value) of Bonds (1 – t) = 1 – tax rate = Interest tax shield deductibility of interest expense Re = Shareholder’s return requirement V = Total value of all capital (Debt + Equity) (www. financescholar. com, n. d. )