1 Vince Lucas MBAD 511V Course Project-MKC Introduction: McCormick and Company INC. is located in Sparks, Maryland. McCormick has been in existence for over one hundred years. McCormick is a world leader in the manufacturing, marketing, and distribution of flavor enhancing products such as seasonings, various spices, and condiments. McCormick operates mainly in North America, Europe, and China. The company is segregated into two divisions, a consumer division and an industrial division. Both divisions included, McCormick ensures it has a product that can participate in any eating occasion. McCormick offers a wide range of products to suit the needs of any customers. McCormick’s consumer division spans over more than 125 countries. Their customers span all forms of food retail including all variations from a traditional grocery store to a discount drug store. McCormick trademarks include various household names such as McCormick®, Lawry’s®, and Club House®. McCormick also caters to various ethnic seasoning and spices for Europe, Middle East, and Africa (EMEA). From the consumer division McCormick has 40% to 60% share of sales within their market. McCormick competes with over 250 brands within the United States alone. McCormick’s industrial division services food manufacturers and foodservice customers on a multinational plane. The competitors in the industrial division span all nationalities but have a limited range of flavor opportunities. In the consumer division, Wal-Mart Stores accounted for 12% of sales in 2013. Pepsi accounted for 11% of sales in the industrial division. The common raw material for McCormick is various vegetables, peppers, rice, dairy products, and soybean oil. Cost of Capital: I computed a weighted average cost of capital on McCormick. I used various creditable websites listed from my instructor to gain pertinent information. I have an understanding that http://www.valueline.com/ or Value Line is most reputable for Beta’s. I researched the website and found McCormick’s Beta to be listed at 0.6. It always seems to add validity by cross referencing data from other source. I researched a creditable website http://pages.stern.nyu.edu/~adamodar/ or Damodaran online to check asset beta for Food Processing industry. Damodaran website had a listed asset beta of 0.69 for Food Processing Industry. I calculated my debt to equity ratio to compute asset beta for given beta from Value Line website, ensuring the Value Line beta was in the same ballpark of the other source. My calculations were computed an asset beta of 0.55. I proceeded ahead; there was no unusual variance from the data. I segregated my computation into Cost or Equity, Cost of Debt, Weights, and WACC. I used Value Line beta, a risk free rate taken from the daily US Treasury 10 year yield on a bond. Data was taken from website http://www.treasury.gov/resource- center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield which was 2.79%. The last piece of information needed was a Market Risk Premium for the US, which is 5% this year. The calculated cost of equity using the formula Cost of Equity = Risk Free + beta*MRP = 5.79%. I moved on to my cost of debt which included checking the public debt of McCormick at the website http://www.finra.org/. Finra had six bonds listed, five of which had all maturity
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1
Vince Lucas MBAD 511V Course Project-MKC
Introduction:
McCormick and Company INC. is located in Sparks, Maryland. McCormick has been in
existence for over one hundred years. McCormick is a world leader in the manufacturing,
marketing, and distribution of flavor enhancing products such as seasonings, various spices, and
condiments. McCormick operates mainly in North America, Europe, and China. The company is
segregated into two divisions, a consumer division and an industrial division. Both divisions
included, McCormick ensures it has a product that can participate in any eating occasion.
McCormick offers a wide range of products to suit the needs of any customers. McCormick’s
consumer division spans over more than 125 countries. Their customers span all forms of food
retail including all variations from a traditional grocery store to a discount drug store.
McCormick trademarks include various household names such as McCormick®, Lawry’s®, and
Club House®. McCormick also caters to various ethnic seasoning and spices for Europe, Middle
East, and Africa (EMEA). From the consumer division McCormick has 40% to 60% share of sales
within their market. McCormick competes with over 250 brands within the United States
alone. McCormick’s industrial division services food manufacturers and foodservice customers
on a multinational plane. The competitors in the industrial division span all nationalities but
have a limited range of flavor opportunities. In the consumer division, Wal-Mart Stores
accounted for 12% of sales in 2013. Pepsi accounted for 11% of sales in the industrial division.
The common raw material for McCormick is various vegetables, peppers, rice, dairy products,
and soybean oil.
Cost of Capital:
I computed a weighted average cost of capital on McCormick. I used various creditable
websites listed from my instructor to gain pertinent information. I have an understanding that
http://www.valueline.com/ or Value Line is most reputable for Beta’s. I researched the website
and found McCormick’s Beta to be listed at 0.6. It always seems to add validity by cross
referencing data from other source. I researched a creditable website
http://pages.stern.nyu.edu/~adamodar/ or Damodaran online to check asset beta for Food
Processing industry. Damodaran website had a listed asset beta of 0.69 for Food Processing
Industry. I calculated my debt to equity ratio to compute asset beta for given beta from Value
Line website, ensuring the Value Line beta was in the same ballpark of the other source. My
calculations were computed an asset beta of 0.55. I proceeded ahead; there was no unusual
variance from the data. I segregated my computation into Cost or Equity, Cost of Debt,
Weights, and WACC. I used Value Line beta, a risk free rate taken from the daily US Treasury 10
year yield on a bond. Data was taken from website http://www.treasury.gov/resource-
center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield which was 2.79%.
The last piece of information needed was a Market Risk Premium for the US, which is 5% this
year. The calculated cost of equity using the formula Cost of Equity = Risk Free + beta*MRP =
5.79%. I moved on to my cost of debt which included checking the public debt of McCormick at
the website http://www.finra.org/. Finra had six bonds listed, five of which had all maturity