WACC Project Verizon Communication Inc

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VERIZON COMMUNICATION INCWACC Project[Type the document subtitle]Type You Name[June 14, 2015]"Discuss the process of calculating the cost of capital for Verizon Communications Inc.by using different methods, including the Capital Asset Pricing Model (CAPM), theDiscounted Cash Flow (DCF) model, and the Own-Bond-Yield-plus-Judgmental-Risk-Premium method. In your answer, explain the assumptions made, the data sources used,and the rationale behind selecting the beta values for CAPM. Also, include a detailedexplanation of how the Weighted Average Cost of Capital (WACC) is computed, andhow the market values of debt and equity are incorporated into the calculation.Word Count Requirement: 1200-1500 words

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Page |2ContentsIntroduction/Background....................................................................................................3Computation of Cost of Capital of Verizon........................................................................5Assumptions......................................................................................................................11Appendix...........................................................................................................................12References.........................................................................................................................16

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Page |3Introduction/BackgroundVerizonCommunicationInc.(Verizon),formedin2000inDelawarenowheadquartered in NewYorkas a result of mergerof Bell Atlantic and GTE,is US largestwireless communication service provider. The company is world’s leading provider ofcommunications, information and entertainment products and servicesto consumers,businesses and government agencies. Other than US, Verizon offers, voice, data andvideo services and solution on wireless and wireline networks.Verizon operations are segmented under two major categories Wireless andWireline. Wireless segment provides voice and data services and equipment sales acrossUS using one of the most extensive wireless networks. On the other hand wirelinesegmentprovidesresidentialconsumers,businessandgovernmentagencieswithcommunication products and enhanced services including broadband data and video,corporate networking solutions, data center and cloud services, security and managednetwork services and local and long distance voice services. Besides, the company alsoowns one of the most expansive end-to-end global Internet Protocol networks. Verizonhas 177,300 employees as of December 31, 2014.Verizon revenues have been growing year-after-year over last three years to$127.08 bn in 2014 registering 3-Yr CAGR of4.65%.Wireless businesscontributes 69% to overall revenues and the share has increasedfrom 65% in 2012. The segment reported 8.2% in 2014 and 6.8% in 2013. Interestingly,the non-service revenue (equipment sales and others) within this segment grew bywhopping 25.2% in 2014 to $15.02 bn.

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Page |4Wireline business contributes 30% to overall revenues and the share has declinedfrom 34% in 2012. The segment has seen declining trend in revenues over last two yearswith a year-over-year decline of 0.5% in 2014 and 0.8% in 2013.Gross Profits have increased at a 3-Yr CAGR of 5.9% to $77.15 bn in 2014.Margins improved to 61% in 2014 compared to59% in 2011. However, the marginsdeclined compared to previous yearof 63% impact by increased in cost services and salesby 11% to $49.93 bn. Although costs as % of sales have increased to 39% of salescompared to 37% in 2013 but the same has declined from 41% in 2011.Net margins improved to 7.6% and profit increased to $9.63 bn compared to 2.2%and $2.40 bn in 2011 registering a 3-Yr CAGR of 58.8%. However, net profits andmargins declined in 2014 compared to 2013 impacted by significant jump of 51.4% inselling, general and admin costs. Cost as % of sales jumped to 32.3% in 2014 comparedto 22.5% in 2013.Subsequent section of the report narrates the computation of cost of capital ofVerizon Communication Inc.

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