What is the return, risk and risk-adjusted performance of Disney’s common stock (ticker symbol DIS) over the last ten years?What is the cost of capital for Disney?Discuss

The assessment for the course is split into two parts: Part A Proposal (a group assignment that counts for 30%) and Part B Financial Model (an individual assignment that counts for 70%). Together, the two parts of the assignment involve the design and construction of a financial model. In Part A you were required to write a proposal for the financial model, while in Part B (i.e. this assignment), you are required to implement a revised version of the financial model.
The original task is summarized as follows: The financial model is to be used to provide answers to the following questions about the Walt Disney Company: • What is the return, risk and risk-adjusted performance of Disney’s common stock (ticker symbol DIS) over the last ten years? • What is the cost of capital for Disney?
Requirements of the Assignment For this assignment, you should undertake the following tasks:
Task 1: Estimate the following performance measures for both Disney and the S&P 500 using simple monthly returns for the period 01/12/2010 to 01/11/2020 (120 observations): mean, standard deviation, 1-month 99% VaR and CVaR, Sharpe ratio. Use the current 3-month US Treasury bill yield as a proxy for the risk-free rate
Task 2: Estimate the weighted average cost of capital for Disney using the following parameters: Cost of debt: based on ‘Interest expense, net’, ‘Current portion of borrowings’ and ‘Borrowings’ from the 2019 annual report Tax rate: based on ‘Income taxes from continuing operations’ and ‘Income from continuing operations before income taxes’ from the 2019 annual report Cost of equity: calculated using the CAPM Risk-free rate: current 30-year US Treasury bond yield Beta: estimated using monthly returns from 01/12/2015 to 01/11/2020 (60 observations), using the S&P 500 as proxy for market portfolio Market risk premium: From survey1 Value of debt: ‘Current portion of borrowings’ and ‘Borrowings’ from the 2019 annual report Value of equity: based on latest share price and number of shares outstanding from Yahoo Finance 1 For example, Fernandez, P., de Apellániz, E., and Acín, J., 2020, Survey: Market Risk Premium and Risk-Free Rate used for 81 countries in 2020. Available at: SSRN: https://ssrn.com/abstract=3560869
Task 3: Undertake one or more sensitivity analyses to explore the robustness of the estimated WACC to the assumptions made. You should write up the completed financial model in a report of no more than 2,000 words, excluding title page, tables and figures, formulas and references. In writing up your report, you should adhere to the following guidelines: • Your report should be professionally presented. You could assume that it will be read by the senior management of the company and so it needs to be neat, properly structured and clearly and concisely written. This is an important skill in practice.
• You should use the following structure for your report: Title page Executive summary: this should briefly summarise the analysis and its main findings. Method and data: this should concisely describe your calculations and the data on which they are based Results: this presents the results of your financial model, including the sensitivity analysis. You should provide a critical discussion of your results. Conclusion: this should summarise the main findings of the model, critically evaluate any shortcomings of the data and method, and offer some suggestions for future work References: these should be alphabetically listed and properly formatted (see below) • You should NOT include appendices in your report • You should make creative use of properly presented tables and charts. Tables and charts should be accompanied by detailed explanatory notes. Look at any paper in a good finance journal to see how to present a table of results (I have put a sample of a Journal of Financial Economics paper in the Assessment Information section , but feel free to look at others also). • Do NOT include Excel screen prints. Also, you do NOT need to describe the specific steps you took in Excel or the functions used. • You should pay attention to the formatting of your reports, particular with respect to line spacing, paragraphs and section titles • You should use Equation Editor in Microsoft Word to format any equations • You should define any variables that are used in equations
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