Company FacebookCalculating the Weighted Average Cost of Capi.docx

Company: Facebook
Calculating the Weighted Average Cost of Capital (WACC)
for your Company
For use in Conjunction with the Firm Valuation Project
First ensure that you have read relevant pages in the text. Some
important sections would include the following, but you may
also double-check the references in the text by using the index
[see: Cost of Capital and Target (optimal) Capital Structure,
etc.]:
The important Chapter in the text is the one entitled "The Cost
of Capital," – with a particular focus on the section entitled
“The Weighted Average Cost of Capital” and the section “Four
Mistakes to Avoid” at the end of the chapter.
The WACC formula discussed below does not include Preferred
Stock. Should your company use PS, be sure to adjust the
equation for it, and see the section in the chapter on the Cost of
Preferred Stock.
The WACC formula that we use is:
WACC = wdrd(1-T) + wsrs
We need to know how to calculate:
1. rsthe cost of common equity. Use the Security Market
Line (SML) – this is why you learn how to calculate a
company’s beta and also why you learn how to find the

appropriate risk-free rate and market-risk premium. For a
review, see the section the text, The CAPM Approach.
2. The weights (wd and ws – note that: wd + ws = 1; so you
only have to calculate one of them). We need to calculate the
weight of debt and the weight of equity (for the cost of debt,
this simply means: what proportion of the firm’s financing is by
debt?). There is a lot to say here, simplified as Theory 1,
Theory 2 and Practice:
a. Theory 1: Theory says that we should use the target
weights along with the market values of both debt and equity
(see the Four Mistakes to Avoid). But the market value of debt
is typically difficult to calculate, because we need to know the
YTM (which is rd) for all of the company’s debt, but we cannot
calculate the YTM without having the current prices of the
company’s outstanding bonds, and most company’s bonds do
not trade (i.e., they will not have up-to-date or current prices –
remember how to calculate the price (value) of a bond on your
calculators?!). As a result, at least for the group project, we go
to Theory 2.
b. Theory 2: Theory also says that we should use the
TARGET weights, but this is a management decision, and as
“outsiders” we do not have access to the thoughts of the CFO or
CEO. So we should look instead to the historical pattern of the
use of debt (mix of debt and equity), and this is one reason that
you should have about 10 years of financial data.
c. Practice: Since we cannot “work” according to the strict
theory of finance, we have to estimate the relevant weights. As
a result, we will use the formula:
wd = Book Value of Debt / [Market Value of Equity + Book
Value of Debt]

The book value of debt is calculated by adding up ALL of the
debt on the balance sheet. This will typically be the sum of
Notes Payable, Current Portion of LT Debt and Long-Term
Debt.
The market value of equity is the “Market Cap,” and equals the
number of (common) shares outstanding multiplied by the
price/share. Note that the “timing” of this value should
coincide with the book value of debt. For example, if you
calculate the book value of debt as of 12/31/14, then the market
cap should also be calculated for that date. Be very careful
about using the reported Market Cap on Yahoo.finance – it may
not have the same “timing.”
3. r d; the cost of debt. There may be more than one
acceptable approach to calculate or estimate a company’s cost
of debt (be sure to read the text!). One relatively
straightforward method is to discover the company’s debt rating
(e.g., by Moodys). This can usually be found on the company’s
10K (see the link on my homepage) and doing a word search for
‘rating’ or ‘debt rating.’ For a discussion of bond ratings, see
the text (look in the index). If you can find the debt rating for
your company then you can carry out the following steps (if you
cannot find a bond rating for your company, you might try to
estimate/guess what it is by considering your company’s beta
and comparing the bond ratings for companies with similar
betas). If you are not able to find a bond rating readily, you can
register (forfree) at Standard & Poor's and at Moody's to find
company ratings. You may also find other interesting and
useful information there. For a general discussion of what the
ratings mean, see the information from these rating agencies on
my homepage at the Bond Rating link.
Once you have the actual bond rating or an estimate you can
then find or estimate your company’s cost of debt by going to
Yahoo.finance and clicking on the Bonds/Rates

link(http://bonds.yahoo.com/rates.html). Look at the yields for
the 20 year Corporate Bonds by rating. If your company’s bond
rating is listed, you’re in luck. If it is not listed then you can
estimate the cost of debt. For example, if the AAA yield is
6.50%, the AA yield is 6.75% and the A yield is 7.00%, you can
see a pattern (equation). For every increase in risk (from AAA
to AA), there is a 0.25% increase in the yield. If your company
has a BB rating, then it is two steps “below” the A rating, so
you should add approximately 0.50% more to the 7.00% for the
A rating, giving you a cost of debt for your company of about
7.50%. Note that this approach assumes a linear equation for
the cost of debt (which may not be strictly true).
4. The corporate tax rate ( T ). Be sure to read the section in
the text on Corporate Income Taxes (Chapter 2). The correct
tax rate for a company is the marginal tax rate for the future! If
you expect your company to be very profitable for a long time
into the future, then the tax rate ( T ) for your company should
probably be the highest marginal tax rate applicable for
corporations. But there are times when companies can obtain
long-term tax breaks so that their tax rates may be lower than
the stated (regulated) tax rate. Consequently you may want to
calculate several/many historical effective tax rates for you
company. The effective tax rate is the actual taxes paid divided
by earnings before taxes (on the income statement). You can
calculate/consider these rates for the past 5-10 years and then
compare this effective tax rate to the legally mandated highest
marginal corporate tax rate. If the past historical effective rate
is lower than the marginal tax rate, there may be a good reason
for using that lower rate in your pro formas.
5. r cs; the cost of common stock
You can use CAPM model to predict the cost of common
stock. The equation runs as followings:

ri = rRF + (RPM) bi
In order to use this model, first you should estimate the beta
of your stock. Please refer to the guidelines of beta calculation
for more information.
.
Rubric Name: Critical Thinking Paper
Justin, please see my comments to your paper attached.
Overall you have some good content but we really must talk
about the paper structure -- I do see some improvement but in
this case had you added the required headings the content would
have a different perspective.
Let's chat at our next face-to-face this coming Monday, 21 Nov.
If you are unable to attend, please email me so we can
coordinate a day/time to go over this assignment.
Associated Learning Objectives
1.1.1: Present material in clear and/or logical order appropriate
to task.
Assessment Method: Score on Criteria - 1.1: Organize
document or presentation clearly in a manner that promotes
understanding and meets the requirements of the assignment.
Required Performance: Meets Performance Requirements

Level Achieved: Does Not Meet Performance Requirements
1.1.2: Articulate thesis and purpose clearly.
1.1.3: Support thesis and purpose fully.
1.1.4: Transition smoothly and develop connections from point
to point.

1.1.5: Create coherent progress from introduction through
conclusion.
1.1.6: Complete assignment in accordance with instructions.
1.2.1: Create meaningful topic sentence for each paragraph or
point.
Assessment Method: Score on Criteria - 1.2: Develop coherent
paragraphs or points so that each is internally unified and so

that each functions as part of the whole document or
presentation.
Level Achieved: Meets Performance Requirements
1.2.2: Develop each paragraph's single topic to the appropriate
depth.
presentation.
1.2.3: Supply relevant and original supporting detail.
presentation.

1.3.1: Use a variety of credible sources to support, extend, and
inform an original thesis or idea, integrating source material
smoothly.
Assessment Method: Score on Criteria - 1.3: Provide sufficient,
correctly cited support that substantiates the writer’s ideas.
1.3.2: Summarize, paraphrase, and quote accurately.
1.3.3: Cite sources properly.
1.4.1: Identify target audience.

Assessment Method: Score on Criteria - 1.4: Tailor
communications to the audience.
1.4.2: Explain unfamiliar terms and material.
1.4.3: Employ precise, appropriate language.
1.4.4: Use audience-appropriate, consistent tone.

1.4.5: Avoid language which indicates bias against
individuals/groups their affiliations, orientations and beliefs.
1.5.1: Demonstrate variation in sentence structure.
Assessment Method: Score on Criteria - 1.5: Use sentence
structure appropriate to the task, message and audience.
Level Achieved: Exceeds Performance Requirements
1.5.2: Express ideas clearly and concisely.

1.5.3: Eliminate sentence-level errors such as run-ons/comma
splices and sentence fragments.
1.6.1: Adhere to standard usage rules of grammar.
Assessment Method: Score on Criteria - 1.6: Follow
conventions of Standard Written English.
1.6.2: Adhere to standard usage rules of word choice.

1.6.3: Adhere to standard usage rules of spelling.
2.1.1: Summarize the issue or problem, using supporting details
to enable a deeper understanding of the issue or problem.
Assessment Method: Score on Criteria - 2.1: Identify and
clearly explain the issue, question, or problem under critical
consideration.
2.1.2: Identify potential underlying causes or conditions
contributing to the issue or problem and consider the context.
consideration.

2.1.3: Pose significant questions to inform the direction of the
investigation of the problem or question.
consideration.
2.1.4: Scan the environment for cues to inform and direct search
for information relevant to the issue or problem.
consideration.
2.2.1: Explore information sources to increase familiarity and
achieve a manageable focus.
Assessment Method: Score on Criteria - 2.2: Locate and access
sufficient information to investigate the issue or problem.

2.2.2: Develop and implement a search strategy that employs
search engines, databases, and inquiries to access the needed
information.
2.2.3: Assess the search results to determine if there are
remaining gaps; revisit strategy as necessary.
2.2.4: Identify contradictory information or inconsistent data
and seek to reconcile contradictions.

2.4.1: Articulate clearly and fairly others' alternative viewpoints
and the basis of reasoning.
Assessment Method: Score on Criteria - 2.4: Consider and
analyze information in context to the issue or problem.
2.4.2: Identify significant, potential implications, and
consequences of alternative points of view.
2.4.3: Evaluate assumptions underlying other analytical
viewpoints, conclusions, and/or solutions.

2.5.1: Present and explain those inferences and deductions that
follow logically from the evidence provided.
Assessment Method: Score on Criteria - 2.5: Develop well-
reasoned ideas, conclusions or decisions, checking them against
relevant criteria and benchmarks.
2.5.2: Assert logical conclusions only when sufficient evidence
supports them, and distinguish between attainable and
unattainable solutions.
2.5.3: Incorporate legal and ethical reasoning when formulating
ideas, conclusions, and decisions.

2.5.4: Complete assignment in accordance with instructions.
Running head: CYBER SECURITY 1
CYBER SECURITY 2
Challenges in Cyber Security
Basagic, Justin
UMUC

Abstract
In this paper, I am writing about how the relationship between
cyber security has changed with innovation over time. I will
also be covering that there is such a thing as good hacking
instead of only shining a negative light on the subject.
Keywords: Cyber security, hacking
Cyber Security and Innovation
Innovations over time has resulted in the creation of devices
such as computers, laptops, and iPods. This has had positive
effects in communications since people can now chat on line,
thus making communication easier, faster, and cheaper. Besides
these benefits, the companies involved in the creation of these
devices have benefited financially due to higher sales they make
over a short period. However, there are significant challenges
that are encountered in cyber security which continue to evolve
over time due to massive growth in the telecom and the
explosion of the internet. Growing with innovations and
technology is paramount to being successful as a cyber security
analyst.

The problems in cyber security are threats, vulnerabilities, and
effects caused by attacks (Hansen & Nissenbaum, 2009). Other
challenges include inadequate funds and lack of visibility
control. According to Hansen & Nissenbaum (2009), cyber
security is the act of taking care of ICT devices. The targets for
cybercriminal are intellectual property, trade secrets, and
contact negotiations. People who perform cyber-attacks, for
instance, cause threats,, and they are categorised into five
subheadings. These are Criminals intentioned on gaining money
from crimes such as theft, hacking and extort. The second type
is spies’ intention to access crucial government information or
private entities while the third group is state warriors who
perform cyber-attacks supporting a country's strategic plans and
objectives. In addition, "hacktivists" who would cyber-attack
for no monetary gain as well as terrorists who use cyber-attacks
as a tool for non-state or state-funded warfare form the fifth
category. These groups of people perform cyber-attacks to bring
organisations to the economic loss to a nation or a firm and
psychological problem to workers in various organizations.
Therefore, data stolen from companies can be alleged on
innocent citizens (Lipman, 2015).
Moreover, there has been a rapid growth of threats per day. It
has been discovered that there was a quarter a million-ransom
ware variants in the past year (Lipman, 2015). However, it has
been understood that the number is growing at the rapid rate of
60,000 new variants every day. Ransom ware acts like a
trawling net which cast broadly to share as a large number of
victims as possible in single attempt (Lipman, 2015). The
threats have been sophisticated though they are conducted in
combination. Conversely, there are aimed threats, which are
designed to attack a certain organisation or even a particular
individual (Lipman, 2015). These risks are tough to block with
traditional security products.
The second challenge facing cyber security is vulnerabilities.
This is because cyber security is in many ways related between
the cyber criminals and the defenders (Fischer, 2016). For

instance, ICT devices are complex, and criminals are always
looking for any weaknesses occurring at most points. However,
defenders can shield these ICT systems against this weakness
though there are significant challenges accompanied by this
move. These may include intentional actions by criminals able
to access a system; supply chain vulnerabilities, which can
allow the use of malicious software during the installation
process; and previously unknown, vulnerabilities without
established solution (Kaminsky, 2006). On the contrary, where
vulnerabilities are known, the implementation may be hindered
by operational constraints.
The third challenge facing cyber security is the impact brought
by the attack. A well-planned attack is capable of destroying the
formality; availability as well as the integrity of an ICT system
with the data it handles. Additionally, cyber attacks can result
in the loss of financial, proprietary, or personal information
without the knowledge of the victim (Fischer, 2016). For
example, denial-of-service cyber attacks affect legitimate users
while accessing an individual system (Fischer, 2016).
Therefore, the user of an ICT system may continue using some
systems while others are inaccessible yet some may not realise
this effect. Though the manufacturing companies are trying to
reduce cyber-attack in conjunction with awareness given to ICT
users, botnet malware constitutes to the growth of this crime.
This is because it gives an attacker the direction of a system for
use in cyber-attacks in other systems.
Besides these effects, most cyber-attacks have little impact
while a bigger attack on some systems with critical
infrastructure (CI), might have significant consequences on
country’s security, it’s economy as well as the livelihood and
safety of the citizens (Fischer, 2016). Although it is widely
recognised that cyber-attacks are costly to individuals and
organisations, economic impacts can be difficult to measure
while estimates vary widely. A cited figure for the annual cost
to the global economy from cybercrime is $400 billion (Fischer,
2016). However, some observers have argued that this cost is

substantially increasing with the expansion of the ICT
infrastructure. The increase could also be attributed to the
transition in customers’ preferences as most of the youths are
purchasing the gadgets.
Besides these challenges, the insufficient fund is also an
inconvenience in cyber security. According to recent statistics,
the local government agencies spend less than five percent of its
IT budget on cyber crime (Lipman, 2015). This figure is half of
what is allocated to the typical commercial enterprise. If the
world's prominent companies have been affected by cyber
attacks, it is evident that both the state and local agencies'
efforts remain underfunded. Because of this, the team mandated
with ensuring cyber safety lack enough resources to implement
their goals. Therefore, because of this, the attackers get an
opportunity to manoeuvre to their benefit. In addition,
government agencies are facing a shortage of cyber security
staff and in case they have, the staff lack knowledge (Lipman,
2015). With the rapid growth in the cyber threats over the last
few years, the increasing demand has created a significant
premium on security skills. This is because the public sector
organisational is required to compete for talent due to the
diverse nature in compensation level across the world. The most
talented organisation has a competitive advantage since the
cyber criminals will not be able to hack any information from
such a firm hence ensuring confidentiality of the information.
The last challenge facing cyber security has limited visibility
and limited control. However, one of the unfortunate by-
products within the IT environment is an avalanche of security
events. Controlling security through alerts has been described as
a thing of the past: it is not only misleading, but it is ultimately
likely to end in a disaster for all involved (Lipman, 2015).
Since this method has been disregarded, this shows that there
are no plans on how to curb this vice. Many people even those
in authority; have been unable to come up with rules and
regulations against this device. The criminals undertaking this
vice have therefore been encouraged to go on by the fact that

there are no rules in the constitution that outline the punishment
for this vice.
Some ways can be used to manage the challenges in cyber
security. Some of the recommended ways are removing the
threat source by closing down botnets or cutting down
incentives for cybercriminals (Fischer, 2016). Secondly, the
manufacturing companies need to address vulnerabilities by
hardening the ICT assets they manufacture by patching software
and training employees. In addition, the users need to lessen
impacts by reducing damage and restoring functions to ensure
continuity of operations in response to attack. The level of risk
reduction will thus vary among sectors and organisations. For
instance, the level of cyber security that customers expect may
be lower for a company in the entertainment industry than for a
bank, a hospital or a government agency (Fischer, 2016).
In conclusion, it is the role of everyone to ensure that cyber
professional and the cyber industry grows and evolves with the
challenges it faces. The government has a substantial
responsibility to make sure that the organisations that fall under
it to provide cyber security are well funded. If this is put into
practice, cyber security will be in a much better place.
References
Hansen, L., & Nissenbaum, H. (2009). Digital disaster, cyber
security, and the CopenhagenSchool. International Studies
Quarterly, 53(4), 1155-1175.
Kaminsky, D. (2006). EXPLORATIONS IN NAMESPACE:
WHITE-HAT HACKING ACROSS THE DOMAIN NAME
SYSTEM. Communications Of The ACM, 49(6), 62-68.
Lipman P., 19th August 2015. The cyber security challenges
facing state and local governments.
Fischer E. A., 12th August 2016. “Cyber security issue and
challenges: in brief.” Congressional research service.

Running head: CYBER SECURITY 1
CYBER SECURITY 8
Challenges in Cyber Security
Basagic, Justin
UMUC
Abstract
In this paper, I am writing about how the relationship between
cyber security has changed with innovation over time. I will
also be covering that there is such a thing as good hacking

instead of only shining a negative light on the subject.
Keywords: Cyber security, hacking
Cyber Security and Innovation
Innovations over time has resulted in the creation of devices
such as computers, laptops, and iPods. This has had positive
effects in communications since people can now chat on line,
thus making communication easier, faster, and cheaper. Besides
these benefits, the companies involved in the creation of these
devices have benefited financially due to higher sales they make
over a short period. However, there are significant challenges
that are encountered in cyber security which continue to evolve
over time due to massive growth in the telecom and the
explosion of the internet. Growing with innovations and
technology is paramount to being successful as a cyber security
analyst.Comment by Diana Lucas: I’d like you to revise this
area a bit. Keep in mind this is a research paper therefore I
need to have a clear idea of what the ISSUE or PROBLEM is
and what YOU as the researcher see as an area of interest to
further investigate.
That said, is this your RESEARCH QUESTION? It should be
clearly stated as such.
Also, what is your HYPOTHESIS? What do you foresee as the
answer to your research question?
Discussion of FindingsComment by Diana Lucas: Per project
instructions you were supposed to add this 1st level heading to
your paper, exactly like this….
The problems in cyber security are threats, vulnerabilities, and
effects caused by attacks (Hansen & Nissenbaum, 2009). Other
challenges include inadequate funds and lack of visibility
control. According to Hansen & Nissenbaum (2009), cyber
security is the act of taking care of ICT devices. The targets for
cybercriminal are intellectual property, trade secrets, and

contact negotiations. People who perform cyber-attacks, for
instance, cause threats,, and they are categorised into five
subheadings. These are Criminals intentioned on gaining money
from crimes such as theft, hacking and extort. The second type
is spies’ intention to access crucial government information or
private entities while the third group is state warriors who
perform cyber-attacks supporting a country's strategic plans and
objectives. In addition, "hacktivists" who would cyber-attack
for no monetary gain as well as terrorists who use cyber-attacks
as a tool for non-state or state-funded warfare form the fifth
category. These groups of people perform cyber-attacks to bring
organisations to the economic loss to a nation or a firm and
psychological problem to workers in various organizations.
Therefore, data stolen from companies can be alleged on
innocent citizens (Lipman, 2015).Comment by Diana Lucas: We
need to get your in-text citations to ‘blend’ into the rest of the
paper – it should not be a different font with a hyperlink.
I went ahead and changed this for you – I’d like to see you
change the rest of your in-text citations to Times New Roman,,
12-pitch.
Moreover, there has been a rapid growth of threats per day. It
has been discovered that there was a quarter a million-ransom
ware variants in the past year (Lipman, 2015). However, it has
been understood that the number is growing at the rapid rate of
60,000 new variants every day. Ransom ware acts like a
trawling net which cast broadly to share as a large number of
victims as possible in single attempt (Lipman, 2015). The
threats have been sophisticated though they are conducted in
combination. Conversely, there are aimed threats, which are
designed to attack a certain organisation or even a particular
individual (Lipman, 2015). These risks are tough to block with
traditional security products.
The second challenge facing cyber security is vulnerabilities.
This is because cyber security is in many ways related between
the cyber criminals and the defenders (Fischer, 2016). For

there are no rules in the constitution that outline the punishment
for this vice.
Some ways can be used to manage the challenges in cyber
security. Some of the recommended ways are removing the
threat source by closing down botnets or cutting down
incentives for cybercriminals (Fischer, 2016). Secondly, the
manufacturing companies need to address vulnerabilities by
hardening the ICT assets they manufacture by patching software
and training employees. In addition, the users need to lessen
impacts by reducing damage and restoring functions to ensure
continuity of operations in response to attack. The level of risk
reduction will thus vary among sectors and organisations. For
instance, the level of cyber security that customers expect may
be lower for a company in the entertainment industry than for a
bank, a hospital or a government agency (Fischer, 2016).
Comment by Diana Lucas: I recommend you move this entire
paragraph to the next section titled “Conclusion and
Recommendations”
Conclusion and RecommendationsComment by Diana Lucas: Per
project instructions you were supposed to add this 1st level
heading to your paper, exactly like this….
In conclusion, it is the role of everyone to ensure that cyber
professional and the cyber industry grows and evolves with the
challenges it faces. The government has a substantial
responsibility to make sure that the organisations that fall under
it to provide cyber security are well funded. If this is put into
practice, cyber security will be in a much better place.Comment
by Diana Lucas: I’d like you to revise this area a bit. Similar to
my comments made to your introduction – here in the
Conclusion I should clearly understand what your RESEARCH
question and HYPOTHESIS was and the overall outcome of
your research. Did your research support or not support your
hypothesis?
I recommend you restate the ISSUE or PROBLEM is and what
YOU as the writer learned from the research itself.

Lastly, you had some good recommendations earlier – throw
them in this section…
ReferencesComment by Diana Lucas: This is NOT supposed to
be bolded per APA format. Please go back and look at the
example papers provided and the slides posted in the
Announcements page.
Hansen, L., & Nissenbaum, H. (2009). Digital disaster, cyber
security, and the CopenhagenSchool. International Studies
Quarterly, 53(4), 1155-1175.Comment by Diana Lucas: This is
correct but needs to be double-spaced
Kaminsky, D. (2006). EXPLORATIONS IN NAMESPACE:
WHITE-HAT HACKING ACROSS THE DOMAIN NAME
SYSTEM. Communications Of The ACM, 49(6), 62-
68.Comment by Diana Lucas: Each of these are NOT correctly
cited. I need for you to review the example papers, slides, and
UMUC help site on citations:
http://sites.umuc.edu/library/libhow/gethelp-citing.cfm
Lipman P., 19th August 2015. The cyber security challenges
facing state and local governments.
Fischer E. A., 12th August 2016. “Cyber security issue and
challenges: in brief.” Congressional research service.
Running head: A SOLUTION TO CYBERTECH’S DILEMMA1
A SOLUTION TO CYBERTECH’S DILEMMA 2

A
Solution
to CyberTech’s Dilemma
Basagic, Justin
UMUC
CourseComment by Diana Lucas: Why is this here?
Recommend that you always do a quality review check of your
papers BEFORE you submit them – this is a MASTER’s
academic program therefore you are not expected to have these
types of errors/oversights in your papers.
Date
A

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