Table: 

Justification for Cost of Capital: 

1. The weight of debt assumed only interest-bearing debt, which includes $16,931 million of long-term debt and capital leases, representing 8% of the total capital structure.

2. The weight of equity used the market value of equity, calculating it as the $432.36 share price as of the calculation date multiplied by 437.7 million shares outstanding as of the latest reported period to equal $189,235 million. This represents 92% of the total capital structure.

3. The cost of debt was calculated using 8% as a reasonable estimate of Netflix’s pre-tax cost of debt based on AA corporate bond yields. This was multiplied by 1 minus the 21% tax rate to equal 4.95% after-tax cost of debt.

4. The cost of equity was calculated using the Capital Asset Pricing Model (CAPM). Netflix's beta was estimated as 1.19 by taking the average of the 1.24, 1.33 and 1.50 betas from Value Line, FactSet and S&P Capital IQ respectively.

   1. The risk-free rate was assumed to be 4.95%, equal to the mid yield on 10-year U.S. Treasury bonds as of the calculation date.

   2. The market risk premium was assumed to be 5.5%, aligned with approximate average market risk premium for U.S. markets.

5. The income tax rate used in calculating the after-tax cost of debt was assumed to be 21%. This estimate is based on Netflix's average effective tax rate over the past 3 years as well as typical rates paid by technology companies.

6. The market risk premium in the CAPM cost of equity estimate is assumed to be 5.5%, which represents the approximate historical average equity risk premium for US markets. While other market risk premiums could be justified, 5.5% provides a reasonable expected return above risk-free rates.

7. The beta factors used from Value Line, FactSet, and S&P Capital IQ reflect an average of the 2-year and 5-year beta estimates from each source. The 2 to 5 year timeframe aims to capture Netflix's current systematic risk relative to the broader entertainment/media sector.

8. The capital structure weights of 92% equity and 8% debt are based on Netflix's most recent quarterly balance sheet figures. This represents the actual observed mix of debt and equity financing the company employs rather than a hypothetical optimal structure.

9. The equity value used to determine the 92% weight is based on Netflix's share price and shares outstanding as of December 12, 2023. This reflects the company's current market capitalization based on investor's consensus valuation.

10. The pre-tax cost of debt of 8% represents an estimate of Netflix's current cost of borrowing by issuing new long-term corporate bonds, assessed based on credit ratings and technology sector bond yields.

Calculation Source: Post 7, 8, 9 .xlsx