H. J. Heinz: Estimating the Cost of Capital in Uncertain Times

8 Pages Posted: 30 May 2017

See all articles by Marc L. Lipson

Marc L. Lipson

University of Virginia - Darden School of Business

Abstract

Given recent changes in market conditions and ongoing market uncertainty, an internal financial analyst at Heinz must estimate the company's weighted average cost of capital (WACC). Data for both Heinz and comparable firms are provided. The case provides opportunities for students to learn or practice a WACC calculation while exploring the economic meaning of inputs to the calculation.

Excerpt

UVA-F-1634

Rev. Jan. 6, 2016

H. J. Heinz: Estimating the Cost of Capital in Uncertain Times

To do a common thing uncommonly well brings success.

—H. J. Heinz Founder Henry John Heinz

As a financial analyst at the H. J. Heinz Company (Heinz) in its North American Consumer Products division, Solomon Sheppard, together with his co-workers, reviewed investment proposals involving a wide range of food products. Most discussions in his office focused on the potential performance of new products and reasonableness of cash flow projections. But as the company finished its 2010 fiscal year at the end of April—with financial markets still in turmoil from the onset of the recession that started at the end of 2007—the central topic of discussion was the company's weighted average cost of capital (WACC).

. . .

Keywords: Cost of Capital, WACC, Discount Rate, Cost of Debt

Suggested Citation

Lipson, Marc Lars, H. J. Heinz: Estimating the Cost of Capital in Uncertain Times. Darden Case No. UVA-F-1634. Available at SSRN: https://ssrn.com/abstract=2974461

Marc Lars Lipson (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

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