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Assignment Answers

Most publicly traded corporations are required to submit 10Q (quarterly) and 10K
(annual) reports to the SEC detailing their financial operations over the previous quarter
or year, respectively. These corporate filings are available on the SEC website at
www.sec.gov. Go to the SEC website, follow the "Search for Company Filings" link, the
"Companies & Other Filers" link, enter "J.W. Mays ", and search for SEC filings made
by J.W. Mays. Find the most recent 10Q and 10K and download the forms. Look on the
balance sheet to find the book value of debt and the book value of equity. If you look
further down the report, you should find a section titled either "Long-term Debt" or
"Long-term Debt and Interest Rate Risk Management" that will list a breakdown of J.W.
Mays's long-term debt.

(Total Assets) = (Total) Liabilities + Stockholder's Equity (book value of equity).

Stockholder's Equity (book value of equity) = Total Assets –Total Liabilities.

Book value of equity: 10-k:

Total Assets =4718695 m; Total Liabilities = 4449639 m (National Foods 10-K, 2017)

Book value of equity = Total Assets –Total Liabilities

= 7418695 – 4449639

= 269056 million, (National Foods 10-K, 2017).

Book value of equity: 10-Q:

Total Assets =64.03 million; Total Liabilities = 14.62

Book value of equity = Total Assets –Total Liabilities

= $64.03 – $14.62

= $49.41 million, (National Foods 10-Q 30 April 2017)

Book value of debt:

10k = $5.41 million, (National Foods 10-K 2017)

10Q = $5.45, (National Foods 10-Q, 30 April 2017.)

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2. To estimate the cost of equity for J.W. Mays, go to finance.yahoo.com and enter the
ticker symbol "J.W. MAYS". Follow the various links to find answers to the following
questions: What is the most recent stock price listed for J.W. Mays? What is the market
value of equity, or market capitalization? How many shares of stock does J.W. Mays have
outstanding? What is the beta for J.W. Mays? Now go back to finance.yahoo.com and
follow the "Bonds" link. What is the yield on 3-month Treasury bills? Using a 7 percent
market risk premium, what is the cost of equity for J.W. Mays using the CAPM?

To estimate the cost of equity, I collected various pieces of information to calculate the CAPM.
The following information was gathered from finance.yahoo.com. The screen shots below
show this information.
Most recent stock price is: $39.1525
Market Capitalization: 78.923M
Shares Outstanding: 2.02M
J.W. Mays Beta: 0.15
Yield on 3-month Treasury bills: 2.21%
Using a 7% market risk premium, what is the cost of equity for J.W. Mays using the
CAPM?
Capital Asset Pricing Model (CAPM) Rs = RF + β X (RM – RF)
Expected return on stock (Rs) =
= risk-free rate (RF) + Stock beta (β) x Market Risk Premium (RM – RF)
= 2.21% + (0.15 * 7.0%)
= 0.0221 + (0.15 * .07)
= 0.0221 + 0.0105
= 0.0326
= 3.26%
Cost of equity for J.W. Mays = 3.26%

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3. Find the beta for each of these competitors, and then calculate the industry average
beta. Using the industry average beta, what is the cost of equity? Does it matter if you use
the beta for J.W. Mays or the beta for the industry in this case?
Industry average beta: Below are the top nine competitors in the real estate Industry by
market capitalization:

Company Ticker Beta

Brawa real estate BRESOA .90
Alexandria real estate Inc. ARE.N 0.87
CCCG real estate ltd. CCCG 0.88
Alexander & Baltin A&B 0.27
Sunitomo reality & developers JPN 1.08
Cedar wood properties CWP 0.04
DHL real estate DHLRE 0.67
Industrial Average Beta 0.67

Cost of equity using industry average beta:

Rs = 2.21%+ (0.67 x 7.0%)

= 0.0221 + (0.67 * .07)

= 0.0221 + 0.0469
= 0.0679
= 6.79
Cost of equity = 6.79%

Does it matter if you use the beta for J.W. Mays or the beta for the industry in this case?

In this situation, the percentage does not show a big difference. Since all the companies are
different, so there is little difference in the cost of equity. I would probably suggest using the
J.W. Mays’s beta cost of equity.

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4. What is the weighted average cost of debt for J.W. Mays using the book value weights
and the market value weights? Does it make a difference in this case if you use book value
weights or market value weights?

Cost of equity = 218000

Cost of debt= 5570000

Total value = 2180000+5570000

= 7750000

Ws =2810000/7750000 = 0.28

Wd = 5570000/7750000 = 0.72

5. You now have all the necessary information to calculate the weighted average cost of
capital for J.W. Mays. Calculate the weighted average cost of capital for J.W. Mays using
book value weights and market value weights assuming J.W. Mays has a 35 percent
marginal tax rate. Which cost of capital number is more relevant?

Calculation:

Using book value weights, the total value of J.W. Mays using 10k annual values is:

V = $50 + $64.85

V = $114.85 million

So, the WACC based on book value weights using 10k annual values is:

WACC = Ws x Rs + Wd x Rd x (1-T)
Where:
Re = cost of equity
Rd = cost of debt
T = corporate tax rate
WACC = Ws x Rs + Wd x Rd x (1-T)

WACC = (0.28) * (0.0326) + (0.72) * (0.10) *(1 – .35)

= .009128 + .0468

WACC = 5.59%

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6. You used J.W. Mays as a representative company to estimate the cost of capital for
GCI. What are some of the potential problems with this approach in this situation? What
improvements might you suggest?

By using J.W. Mays as a representative company to estimate cost of capital for GCI, one of the
risks factor affecting the cost of capital is by the operation of the company’s stores for sale. On
the other hand, J.W. Mays utilizes its website for sales and can be considered one of the leaders
among other competitors in the industry. GCI may want to utilize the internet for sales or may
want to go public which would offer more access to capital and other resources.

GCI: general Communication Industry.

References:

https://www.sec.gov/Archives/edgar/data/54187/000120677418002890/jwmays3363316-
10k.htm

https://www.sec.gov/Archives/edgar/data/54187/000120677418001819/jwm3363314-
10q.htm

Stock price beta

https://finance.yahoo.com/quote/MAYS/

Statistics

https://finance.yahoo.com/quote/MAYS/key-statistics?p=MAYS

Beta of firms

https://www.reuters.com/finance/stocks/financial-highlights/ARE.N

https://finance.yahoo.com/quote/bres.qa/

https://www.bloomberg.com/quote/000736:CH

https://www.infrontanalytics.com/fe-en/32044FI/Indiabulls-Real-Estate-Limited/Beta

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

https://simplywall.st/stocks/us/real-estate/nasdaq-mays/jw-mays