WACC Project Verizon Communication Inc

Name: WACC Project Verizon Communication Inc
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Author: David Rodriguez

This document provides a comprehensive analysis of the Weighted Average Cost of Capital (WACC) for Verizon, offering insights into financial decision-making and investment strategies.

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VERIZON COMMUNICATION INC
WACC Project
[Type the document subtitle]
Type You Name
[June 14, 2015]
"Discuss the process of calculating the cost of capital for Verizon Communications Inc.
by using different methods, including the Capital Asset Pricing Model (CAPM), the
Discounted Cash Flow (DCF) model, and the Own-Bond-Yield-plus-Judgmental-Risk-
Premium method. In your answer, explain the assumptions made, the data sources used,
and the rationale behind selecting the beta values for CAPM. Also, include a detailed
explanation of how the Weighted Average Cost of Capital (WACC) is computed, and
how the market values of debt and equity are incorporated into the calculation.
Word Count Requirement: 1200-1500 words

Page | 2
Contents
Introduction/Background .................................................................................................... 3
Computation of Cost of Capital of Verizon ........................................................................ 5
Assumptions...................................................................................................................... 11
Appendix ........................................................................................................................... 12
References ......................................................................................................................... 16

Page | 3
Introduction/Background
Verizon Communication Inc. (Verizon), formed in 2000 in Delaware now
headquartered in NewYork as a result of merger of Bell Atlantic and GTE, is US largest
wireless communication service provider. The company is world’s leading provider of
communications, information and entertainment products and services to consumers,
businesses and government agencies. Other than US, Verizon offers, voice, data and
video services and solution on wireless and wireline networks.
Verizon operations are segmented under two major categories Wireless and
Wireline. Wireless segment provides voice and data services and equipment sales across
US using one of the most extensive wireless networks. On the other hand wireline
segment provides residential consumers, business and government agencies with
communication products and enhanced services including broadband data and video,
corporate networking solutions, data center and cloud services, security and managed
network services and local and long distance voice services. Besides, the company also
owns one of the most expansive end-to-end global Internet Protocol networks. Verizon
has 177,300 employees as of December 31, 2014.
Verizon revenues have been growing year-after-year over last three years to
$127.08 bn in 2014 registering 3-Yr CAGR of 4.65%.
Wireless business contributes 69% to overall revenues and the share has increased
from 65% in 2012. The segment reported 8.2% in 2014 and 6.8% in 2013. Interestingly,
the non-service revenue (equipment sales and others) within this segment grew by
whopping 25.2% in 2014 to $15.02 bn.

Page | 4
Wireline business contributes 30% to overall revenues and the share has declined
from 34% in 2012. The segment has seen declining trend in revenues over last two years
with a year-over-year decline of 0.5% in 2014 and 0.8% in 2013.
Gross Profits have increased at a 3-Yr CAGR of 5.9% to $77.15 bn in 2014.
Margins improved to 61% in 2014 compared to 59% in 2011. However, the margins
declined compared to previous year of 63% impact by increased in cost services and sales
by 11% to $49.93 bn. Although costs as % of sales have increased to 39% of sales
compared to 37% in 2013 but the same has declined from 41% in 2011.
Net margins improved to 7.6% and profit increased to $9.63 bn compared to 2.2%
and $2.40 bn in 2011 registering a 3-Yr CAGR of 58.8%. However, net profits and
margins declined in 2014 compared to 2013 impacted by significant jump of 51.4% in
selling, general and admin costs. Cost as % of sales jumped to 32.3% in 2014 compared
to 22.5% in 2013.
Subsequent section of the report narrates the computation of cost of capital of
Verizon Communication Inc.

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WACC Project Verizon Communication Inc

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