Cost of Capital for Master Tools You have recently been hired by Master Tools (MT) in its relatively new treasury manage
Posted: Fri Jul 01, 2022 7:36 am
Cost of Capital for Master ToolsYou have recently been hired by Master Tools (MT) in its relativelynew treasury management department. MT was founded eight years agoby Martha Masters. Martha found a method to streamline themanufacturing process, resulting in a cheaper tool. The toolsmanufactured by MT are designed for the mass market and soldprimarily through retail. The company is privately owned by Marthaand her family, and it had sales of $97 million last year.
MT primarily sells to do-it-yourself (DIY) customers withpersonal projects, although it does sell through various onlinemarketplaces. As a result, the company’s sales are price sensitive.When the company had sufficient capital, it would expandproduction. Relatively little formal analysis has been used in itscapital budgeting process. Martha has just read about capitalbudgeting techniques and has come to you for help. For starters,the company has never attempted to determine its cost of capital,and Martha would like you to perform the analysis. Because thecompany is privately owned, it is difficult to determine the costof equity for the company. Martha wants you to use the pure playapproach to estimate the cost of capital for MT, and she has chosenSnap-On Tools as a representative company. The following questionswill lead you through the steps to calculate this estimate.
1. Most publicly traded corporations are required to submitquarterly (10-Q) and annual (10-K) reports to the SEC detailing thefinancial operations of the company over the past quarter or year,respectively. These corporate filings are available on the SECwebsite at www.sec.gov. Go to the SEC website, follow the “SearchCompany and Individual Filings” link, and search for SEC filingsmade by Snap-On Tools (SNA). Find the most recent 10-Q or 10-K, anddownload the form. Look at the balance sheet to find the book valueof debt and the book value of equity.
MT primarily sells to do-it-yourself (DIY) customers withpersonal projects, although it does sell through various onlinemarketplaces. As a result, the company’s sales are price sensitive.When the company had sufficient capital, it would expandproduction. Relatively little formal analysis has been used in itscapital budgeting process. Martha has just read about capitalbudgeting techniques and has come to you for help. For starters,the company has never attempted to determine its cost of capital,and Martha would like you to perform the analysis. Because thecompany is privately owned, it is difficult to determine the costof equity for the company. Martha wants you to use the pure playapproach to estimate the cost of capital for MT, and she has chosenSnap-On Tools as a representative company. The following questionswill lead you through the steps to calculate this estimate.
1. Most publicly traded corporations are required to submitquarterly (10-Q) and annual (10-K) reports to the SEC detailing thefinancial operations of the company over the past quarter or year,respectively. These corporate filings are available on the SECwebsite at www.sec.gov. Go to the SEC website, follow the “SearchCompany and Individual Filings” link, and search for SEC filingsmade by Snap-On Tools (SNA). Find the most recent 10-Q or 10-K, anddownload the form. Look at the balance sheet to find the book valueof debt and the book value of equity.