Question

Hello,

I am doing a WACC project of Apple, Inc and trying to follow the instruction below, but I do not think it is clear enough for me to follow.

Calculating the Weighted Average Cost of Debt

1. Find the market value of each bond issue. To do this find the number of bonds and then multiply by the price of the bond (remember that bond prices are quoted in 100s, but are really 1000s).
2. If there is no bond price, assume $1000 par is the price.
3. For these bonds, the YTM =coupon rate
4. Calculate the total market value of bonds
5. Calculate the weights for each bond issue as market value of bond issue/ Total market value of debt. Make sure your weights sum to one.
6. For each bond issue, multiply the weight by that issue’s YTM.
7. Sum the weighted YTMs, and you now have the weighted average R_D,

I was able to pull all bonds info of Apple and try to input the data to excel workbook.

I am not sure which one goes to $ amt., price and YTM.

According to the instruction, YTM is coupon rate, if so, what YTM indicates on the bonds data. Also, can you please verify my par value? based on Apple 2018 10-K, par value is $0.00001.

Thanks

Investors > Market Data > Bonds>Results Last Updated: 01/25/2019 Bonds Bond Results Issuer Name APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC Callable Sub-Product Type Moody's S&P Price Yield AAPL4336437 No AAPL4336434 Yes AAPL4336436 Yes AAPL4336433 Yes AAPL4336441 Yes AAPL4389214 AAPL4389210 Yes AAPL4389212 Yes AAPL4389208 Yes AAPL4389215 Yes AAPL4452430 AAPL4452431 AAPL4452432 AAPL4452438 Yes AAPL4452433 Yes AAPL4452434 Yes AAPL4452439 Yes AAPL4452435 Yes AAPL4452437 Yes AAPL4492959 Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond orporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond Corporate Bond orporate Bond Corporate Bond Corporate Bond 3.807 02/23/2021 Aa1 2.850 02/23/2023 Aa1 4.500 02/23/2036 Aa1 4.650 02/23/2046 Aa1 3.250 02/23/2026 Aa1 2.722 08/02/2019 Aa1 1.100 08/02/2019 Aa1 1.550 08/04/2021 Aa1 2.450 08/04/2026 Aa1 3.850 08/04/2046 Aa1 2.671 02/08/2019 Aa1 2.78902/07/2020 Aa1 3.101 02/09/2022 Aa1 1.550 02/08/2019 Aa1 1.900 02/07/2020 Aa1 2.500 02/09/2022 Aa1 3.000 02/09/2024 Aa1 3.350 02/09/2027 Aa1 4.250 02/09/2047 Aa1 2.685 05/11/2020 Aa1 103.250 99.425 3.001 107.562 3.877 07.820 4.161 99.521 3.326 99.315 2.457 97.139 2.734 93.902 3.375 96.297 4.075 U APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC APPLE INC 100.007 100.060 100.269 99.963 2.848 99.616 2.281 99.171 2.787 99.726 3.059 99.331 3.446 102.080 4.123 99.780 Previous 1 2 3 Next

Answer 1

Regarding par value, it should be $1000. The $0.00001 value that you are referring is that of apple's equity share as given in their 10K.

Regarding $Amt

I believe you are trying to calculate the number of bonds issued using the formula ($ Amount/Par value). If that is the case the, $ amount will take in the total value of bond issue i.e. how much money was raised in a particular bond issue.

Price:

In the price column you will fill in the last sales price as given in the snips you have attached. The way bond quotes work is that the last sale price represents the market price as a percentage of the par value, $1000. For example, a quoted price of 103.250 means that the market price is $1,032.50 (103.250% of $1000). This is what is meant by the very first instruction " bond prices are quoted in 100s but are really 1000s). So, $1,032.50 will go into the price column.

If, however price is not quoted, you need to fill in the par value which is $1000.

Regarding YTM, you need to take the Yield figure quoted in the snips. Coupon rate will only be used in case the bond price is not given i.e. when you are using the par value as price. This is because when market prices are equal to the bond's par value, its yield equals the coupon rate.

Hope this helps!