Cargill is generally considered to be the largest privately held company in the world. Headquartered in Minneapolis Minnesota the company has been averaging sales of over US$50 billion per year over the past 5 year period. Although the company does not have publicly traded shares it is still extremely important for it to calculate its weighted average cost of capital properly in order to make rational decisions on new investment proposals.Assuming a risk-free rate of 2.50% an effective tax rate of 40% and a market risk premium of 5.50% estimate the weighted average cost of capital first for companies A and B and then estimate what you believe a comparable WACC would be for Cargill.Company A Company B CargillTotal sales US$4.5 billion US$26 billion US$50 billionCompany’s beta 0.86 0.78 ??Company credit rating AA A AAWeighted average cost of debt 6.885% 7.125% 6.820?bt to total capital ratio 34% 41% 28%International sales as % of total sales 12% 26% 45%
