Weighted Average Cost of Capital

In the context of our project, the next steps involve conducting a company valuation. To achieve this, we must first determine the Weighted Average Cost of Capital (WACC) for the company. In the case of Kraft Heinz Company (KHC), following an extensive research and analysis, which included comparing Betas with data from three different financial platforms - Factset, Value Line, and S&P Capital, I  have calculated at an average WACC of 7.93%. This WACC takes into consideration the significant increase in interest rates observed over the past year.

It's worth noting that KHC's WACC, while competitive, is higher when compared to key competitors like Nestle and Unilever. However, it's essential to highlight that Nestle is registered as an American Depositary Receipt (ADR), and its WACC is influenced by the differences in interest rates between the United States and Switzerland, where the company is headquartered. This variance in interest rates plays a role in calculating Nestle's WACC..

On the other hand, Unilever's WACC is more closely aligned with KHC, currently standing at 6.51%. This indicates that KHC is having a higher cost for financing its assets when compared to Unilever. This difference could be a red flag for potential investors, as a higher WACC implies greater expenses related to interest-bearing debt. Lower WACC, as observed in the case of Unilever, translates to increased profitability and reduced financial burdens for the company. Consequently, investors may lean towards competitors with lower WACC figures, as this signifies improved profitability and less expense associated with servicing interest-bearing debt, which is typically a substantial financial obligation for companies.

Figure 1: In the table below we can see the different Betas, from three different sources and get to an Average WACC of 7.81%.