1 00:00:00,000 --> 00:00:18,000 The Illinois State Collegiate Compendium, Academic Lecture in Business and Economics. 2 00:00:18,000 --> 00:00:29,360 This is Business Finance, FIL 240 for Autumn semester 2023. 3 00:00:29,360 --> 00:00:36,160 Today, the weighted average cost of capital and we will go into that in just a little bit here. 4 00:00:36,160 --> 00:00:41,960 A couple of other little pointers as far as class goes. 5 00:00:41,960 --> 00:00:49,960 I'll have a pop quiz on Wednesday of next week, a surprise quiz and as usual I ask that you please be surprised by it. 6 00:00:49,960 --> 00:01:04,960 What else was I thinking? The content today, I've built a template for you, but I'm going to set it up on the whiteboard, at least partially. 7 00:01:04,960 --> 00:01:12,960 I tried to do it completely on the whiteboard in the last class and that was a fiasco of my bad calculations and all that. 8 00:01:12,960 --> 00:01:23,960 So I don't think I'll do it in quite such detail this time around, but that will help a lot with this. 9 00:01:23,960 --> 00:01:33,960 Now, there are a couple of tricks here that I can do to make the spreadsheets move faster for you. 10 00:01:33,960 --> 00:01:41,960 The problem is, as I found out the hard way in the last class, I don't think you can do them on a Mac. 11 00:01:41,960 --> 00:01:47,960 I'm not sure, but every different way that we tried it, it just didn't work. 12 00:01:47,960 --> 00:01:52,960 But the main thing is that the primary worksheet works fine. 13 00:01:52,960 --> 00:02:05,960 The real issue is just getting the numbers into the places so that the calculations part of Excel can take control of it and get you your answers. 14 00:02:05,960 --> 00:02:07,960 But I'll get to that in a little bit here. 15 00:02:07,960 --> 00:02:12,960 First, let's have a look at the numbers and the numbers are just peachy today. 16 00:02:12,960 --> 00:02:23,960 The Dow up two-thirds of a percent, the S&P 500 up more than a percent, and the NASDAQ up almost one and two-thirds percent. 17 00:02:23,960 --> 00:02:30,960 Back to the usual way that the numbers look, comparatively speaking. 18 00:02:30,960 --> 00:02:37,960 Now, another thing here, look at the S&P 500, the volume on it. 19 00:02:37,960 --> 00:02:46,960 It's still well below the 52-week daily average of 3.7 billion shares. 20 00:02:46,960 --> 00:02:53,960 However, you notice if you've been watching these numbers with me every time we hold the class, it's been creeping upward. 21 00:02:53,960 --> 00:02:57,960 Today, it was nearly 2.8 billion. 22 00:02:57,960 --> 00:03:07,960 So the investors are, it looks like they're coming off the sidelines and beginning to put money into the markets. 23 00:03:07,960 --> 00:03:12,960 Now, again, on the markets, we had a good, strong bull day. 24 00:03:12,960 --> 00:03:17,960 And as you know, the bull, you had a bull, explained to you that it's a bull market. 25 00:03:17,960 --> 00:03:26,960 And even when the bears try to bully the bulls, it still works out just fine in the end for the bulls. 26 00:03:26,960 --> 00:03:32,960 One brief mention right here. 27 00:03:32,960 --> 00:03:42,960 The crude oil has broken through its lower resistance at 82, and we're now clear down to 80.91. 28 00:03:42,960 --> 00:03:47,960 $80.91 per barrel on the light sweet Brent benchmark. 29 00:03:47,960 --> 00:03:52,960 That is really good news, obviously, boosts the economy. 30 00:03:52,960 --> 00:04:04,960 However, I don't know that it will actually, we'll see gasoline prices are going to probably ease up over the next week if the oil price stays down. 31 00:04:04,960 --> 00:04:08,960 We may see as low as right around here, $3.19 a gallon. 32 00:04:08,960 --> 00:04:19,960 However, I don't think it'll be going down as much as one might hope, because if you look at the price of diesel right now, it's running at almost $4.20 a gallon. 33 00:04:19,960 --> 00:04:37,960 So that would indicate that there are probably the oil, there will be more production of distillates like diesel just to fill in what appears to be a little bit of a low supply in it right now. 34 00:04:37,960 --> 00:04:46,960 That higher price floor supply produced more of the diesel so you can get it into the pipeline at the expense of producing more gasoline. 35 00:04:46,960 --> 00:04:53,960 So that might put a damper on too much drop in the price of gas for the time being. 36 00:04:53,960 --> 00:04:58,960 Gold finally broke below its $2,000 resistance level. 37 00:04:58,960 --> 00:05:01,960 It got above it, and it chickened out and ran back down. 38 00:05:01,960 --> 00:05:06,960 Good news again, the apocalypse freaks aren't buying gold. 39 00:05:06,960 --> 00:05:18,960 Looking at the euro and the pound and the yen all slid, which is good news, dollar appreciating against these currencies. 40 00:05:18,960 --> 00:05:29,960 But it seems that the euro at least, and the other ones too, are in more or less a trading band around 105 to 106 right now. 41 00:05:29,960 --> 00:05:31,960 So there's that. 42 00:05:31,960 --> 00:05:33,960 Now, 10-year bonds. 43 00:05:33,960 --> 00:05:35,960 Yields are down. 44 00:05:35,960 --> 00:05:37,960 Good news, that means prices are up. 45 00:05:37,960 --> 00:05:41,960 So in other words, investors are buying bonds. 46 00:05:41,960 --> 00:05:43,960 They're buying into the bond market. 47 00:05:43,960 --> 00:05:46,960 That's causing the yields to go the opposite way. 48 00:05:46,960 --> 00:05:48,960 Yields are going down. 49 00:05:48,960 --> 00:05:51,960 That means interest rates are going down. 50 00:05:51,960 --> 00:06:03,960 There was an article, I think it was yesterday, that said that home mortgage rates are starting to slide back again for the first time in quite a whole lot of months. 51 00:06:03,960 --> 00:06:05,960 So that is good news. 52 00:06:05,960 --> 00:06:13,960 Stimulating the economy, lower energy costs, lower mortgage loan rates. 53 00:06:13,960 --> 00:06:16,960 This is all good news for the economy. 54 00:06:16,960 --> 00:06:18,960 We're probably on a roll. 55 00:06:18,960 --> 00:06:25,960 We're still in a kind of a recovery, but we're getting toward an expansion. 56 00:06:25,960 --> 00:06:29,960 That's good news for you, because that means business activity will increase. 57 00:06:29,960 --> 00:06:41,960 That means that more jobs will be available, and you will have a job, an internship or a job, until artificial intelligence takes away all of our jobs and ends us as a species. 58 00:06:41,960 --> 00:06:44,960 So for the time being, they'll celebrate. 59 00:06:44,960 --> 00:06:53,960 Over on the other side of the world, sides of the world, last night, the Nikkei just jumped right at the bell. 60 00:06:53,960 --> 00:06:55,960 It was up. 61 00:06:55,960 --> 00:07:01,960 That meant that before the bell, there was some good news that punched the market up. 62 00:07:01,960 --> 00:07:07,960 But then from there, there was no more news, good or bad, so it just floated for the rest of the day. 63 00:07:07,960 --> 00:07:16,960 And then once the sun had set in Tokyo and it began to rise in Europe and then in London, I don't even know what to say about. 64 00:07:16,960 --> 00:07:20,960 London has been choppy, ups and downs. 65 00:07:20,960 --> 00:07:27,960 You see how that started up, dipped into negatives, did a bull run, and then the bears took over again. 66 00:07:27,960 --> 00:07:42,960 So I'm not sure what's going on over there in Great Britain, but there's considerable volatility in the day-to-day market activity. 67 00:07:42,960 --> 00:07:46,960 Now, let me go on here. 68 00:07:46,960 --> 00:07:54,960 Now, I have a spreadsheet to show you on this, and I'll get to that in a little bit here. 69 00:07:54,960 --> 00:08:06,960 Just some happy news, though, that this mathematically, it's arithmetic and calculator, but it can get tedious as heck. 70 00:08:06,960 --> 00:08:14,960 The subject is calculating the weighted average cost of capital, the WAC. 71 00:08:14,960 --> 00:08:18,960 This thing, as I said on Monday, it's important to businesses. 72 00:08:18,960 --> 00:08:25,960 You may even hear it from time to time in whatever business field you're in in your company. 73 00:08:25,960 --> 00:08:27,960 They'll mention WAC. 74 00:08:27,960 --> 00:08:35,960 For one thing, it is frequently used as a discount rate for projects, for NPVs and all that. 75 00:08:35,960 --> 00:08:37,960 It shouldn't be, but it is. 76 00:08:37,960 --> 00:08:47,960 But even on its own, the weighted average cost of capital has a lot of meaning to it in terms of the cost of financing the company, 77 00:08:47,960 --> 00:08:54,960 financing the company as it is, financing the company as it will be with more projects in it. 78 00:08:54,960 --> 00:09:18,960 So, the weighted average cost of capital is equal to the weight of debt times the after-tax cost of debt plus the weight of equity times the cost of equity. 79 00:09:18,960 --> 00:09:20,960 Nothing complicated there. 80 00:09:20,960 --> 00:09:27,960 Now, the weight of equity has three pieces. 81 00:09:27,960 --> 00:09:34,960 There is the weight of preferred times the cost of preferred stock. 82 00:09:34,960 --> 00:09:43,960 There's the weight of common stock times the cost of common stock, R sub S. 83 00:09:43,960 --> 00:09:46,960 There's another one which I'm not going to push today. 84 00:09:46,960 --> 00:09:51,960 I'll bring it up on Monday just as one last side note. 85 00:09:51,960 --> 00:10:03,960 There's also the weight of new issue common stock times the cost of new issue common stock, R sub N. 86 00:10:03,960 --> 00:10:08,960 For now, we can dispense with that one. 87 00:10:08,960 --> 00:10:13,960 We're just looking for a straight-up, clean weighted average cost of capital. 88 00:10:13,960 --> 00:10:19,960 No new financing, just what we've got, what the company is as it is right now, 89 00:10:19,960 --> 00:10:24,960 not as it would be if it issued more stock for some reason. 90 00:10:24,960 --> 00:10:30,960 Now, all of these, you will recall that I gave you the formulas, the component cost of capital. 91 00:10:30,960 --> 00:10:46,960 So, for example, the cost of preferred is the dividend on preferred divided by the price right now of preferred common stock. 92 00:10:46,960 --> 00:10:48,960 Did you just get the dividend? 93 00:10:48,960 --> 00:10:58,960 Remember, the dividend is the par value of the common stock times the cost of the common stock times the par value. 94 00:10:58,960 --> 00:11:00,960 The dividend times the par value. 95 00:11:00,960 --> 00:11:14,960 Now, the cost of debt, of course, after taxes, is the cost of debt pre-tax times one minus the tax rate. 96 00:11:14,960 --> 00:11:24,960 For right now, until someone changes it, it's 21%. 97 00:11:24,960 --> 00:11:33,960 Even some of the more recent textbooks have it, the top marginal tax bracket is 35% or 39%. 98 00:11:33,960 --> 00:11:45,960 But that massive tax cut in 2017 drove the top marginal tax rate to 21% for companies, for corporate America. 99 00:11:45,960 --> 00:11:50,960 Just a gift that just keeps on giving for the big companies. 100 00:11:50,960 --> 00:11:54,960 So there's that. 101 00:11:54,960 --> 00:11:57,960 Okay. 102 00:11:57,960 --> 00:12:06,960 The pain in the ass is the cost of equity, R sub S. 103 00:12:06,960 --> 00:12:11,960 You will recall that I actually gave you three formulas. 104 00:12:11,960 --> 00:12:30,960 If it's an old company that has constant growth dividends, R sub S would be the D1 over P0, the dividend one period out over the price of the common stock plus G, 105 00:12:30,960 --> 00:12:45,960 where D1 is equal to the current dividend, the dividend just paid time, grown one period, times one plus G. 106 00:12:45,960 --> 00:12:55,960 But I said if it's not an old company with constant growth rate dividends, then you would slide over to the capital asset pricing model. 107 00:12:55,960 --> 00:13:15,960 The expected return to the stock is going to be the risk-free rate plus the beta of the stock times the expected return to the market portfolio minus the risk-free rate. 108 00:13:15,960 --> 00:13:41,960 But then I gave you a third way to do it, where the return to the stock would be the current bond yield plus an equity premium of the industry, the industry equity premium. 109 00:13:41,960 --> 00:13:49,960 So you would have to read the problem to see which one of those you would use. 110 00:13:49,960 --> 00:13:58,960 Like if I gave you the risk-free rate, the dividend, and the growth rate of the dividends, you'd know you'd use the first formula. 111 00:13:58,960 --> 00:14:07,960 If I gave you the beta and the risk-free rate and the expected return to the market, you'd know you'd use the capital asset pricing model. 112 00:14:07,960 --> 00:14:22,960 But if I gave you the bond yield the company was currently experiencing and I gave you the equity premium, then you would probably use the last of those formulas, yield plus equity premium. 113 00:14:22,960 --> 00:14:27,960 So here's what I'll do. 114 00:14:27,960 --> 00:14:34,960 Any problem I give you on a quiz or an exam, it'll use the first way. 115 00:14:34,960 --> 00:14:37,960 You'll use the first one. 116 00:14:37,960 --> 00:14:45,960 In other words, I'll give you the current dividend, the growth rate of the dividends, and the current price. 117 00:14:45,960 --> 00:14:54,960 That way you're not scrambling trying to figure out what the heck you're supposed to use for a problem. 118 00:14:54,960 --> 00:15:10,960 I might ask you about the three different ways in some kind of a question, multiple choice or something like that, but I won't have you do it in a calculation kind of thing. 119 00:15:10,960 --> 00:15:21,960 Now as far as the weights of these, the weights, 120 00:15:21,960 --> 00:15:27,960 the first thing you have to do is get the debt. 121 00:15:27,960 --> 00:15:40,960 You get the market value of the debt. 122 00:15:40,960 --> 00:15:51,960 I'll give you the weight for the preferred stock. 123 00:15:51,960 --> 00:16:04,960 You get the market value of the preferred stock. 124 00:16:04,960 --> 00:16:26,960 For the common stock, you get the market value of the common stock. 125 00:16:26,960 --> 00:16:31,960 If you add those three values, they'll be big numbers. 126 00:16:31,960 --> 00:16:57,960 If you add those up, you get the total market value of the company. 127 00:16:57,960 --> 00:17:06,960 To get the weights, you take each one of these values divided by the total. 128 00:17:06,960 --> 00:17:23,960 The weight of debt would be the market value of debt divided by the total. 129 00:17:23,960 --> 00:17:35,960 To get the weight of the preferred, you take the market value of the preferred 130 00:17:35,960 --> 00:17:40,960 over the total. 131 00:17:40,960 --> 00:18:02,960 And to get the weight of the common stock, you take the market value of the common stock divided by the total. 132 00:18:02,960 --> 00:18:10,960 And then for the WAC, each weight times the cost of the component. 133 00:18:10,960 --> 00:18:18,960 In theory, this is not hard, it's just arithmetic. 134 00:18:18,960 --> 00:18:25,960 In practice, it just can be a pain, all those calculations. 135 00:18:25,960 --> 00:18:35,960 Hence why we invented Excel, it works hard so we don't have to. 136 00:18:35,960 --> 00:18:42,960 The one thing that I should caution here is that this weight of debt, 137 00:18:42,960 --> 00:18:48,960 you're going to need to get the yield to maturity on the debt. 138 00:18:48,960 --> 00:18:58,960 You can't use the coupon, you need to use the yield to maturity. 139 00:18:58,960 --> 00:19:09,960 Now, this template, I will upload it, what I've got here, and I'm going to walk it through with you. 140 00:19:09,960 --> 00:19:14,960 We're going to need costs and we're going to need weights. 141 00:19:14,960 --> 00:19:23,960 We're going to need the component costs and we're going to need the component weights. 142 00:19:23,960 --> 00:19:31,960 And here's how it works. 143 00:19:31,960 --> 00:19:36,960 Now, let's do the debt first. 144 00:19:36,960 --> 00:19:48,960 This is that little mini version of that bond yield calculation template that I gave you earlier. 145 00:19:48,960 --> 00:19:57,960 It's recreated here in the context of calculating weighted average cost of capital. 146 00:19:57,960 --> 00:20:01,960 Now, watch what I'm going to do. 147 00:20:01,960 --> 00:20:22,960 You've got a bond, now in this example that I have here, the bond price on the 100 148 00:20:22,960 --> 00:20:33,960 is 102.40 149 00:20:33,960 --> 00:20:50,960 and it's due in 2031. 150 00:20:50,960 --> 00:21:00,960 With a coupon of 4.25 percent. 151 00:21:20,960 --> 00:21:37,960 That will give us the information to get the yield to maturity. 152 00:21:37,960 --> 00:21:44,960 The 102.40, okay, it has eight years to maturity. 153 00:21:44,960 --> 00:21:48,960 You just figure that out and you put it right there. 154 00:21:48,960 --> 00:21:55,960 The settlement date you don't have to do, nor do you have to do the maturity date. 155 00:21:55,960 --> 00:22:05,960 It will work that out for you. 156 00:22:05,960 --> 00:22:10,960 So I'm going to put those in gray so you know you don't have to fill those in. 157 00:22:10,960 --> 00:22:13,960 You can do one or two payments a year. 158 00:22:13,960 --> 00:22:17,960 It doesn't materially affect the result. 159 00:22:17,960 --> 00:22:20,960 The day's basis is 360. 160 00:22:20,960 --> 00:22:27,960 You don't have to change that either. 161 00:22:27,960 --> 00:22:36,960 And that will give you the 4.39 percent for the cost of debt. 162 00:22:36,960 --> 00:22:38,960 But we're not finished yet. 163 00:22:38,960 --> 00:22:41,960 We need to fill in some information over here. 164 00:22:41,960 --> 00:22:59,960 Let's say that the preferred is 2.00 percent 165 00:22:59,960 --> 00:23:24,960 value $85 per share currently priced at $63 per share. 166 00:23:29,960 --> 00:23:45,960 So I'm at the sell. 167 00:23:45,960 --> 00:23:48,960 Wrap the text. 168 00:23:48,960 --> 00:23:52,960 There you go. 169 00:23:52,960 --> 00:24:18,960 Common stock just paid a $1.80 per share dividend 170 00:24:18,960 --> 00:24:43,960 that is expected to grow at 2 percent per year 171 00:24:43,960 --> 00:24:55,960 and is currently priced at $34 per share. 172 00:25:13,960 --> 00:25:17,960 Wrap that text. 173 00:25:17,960 --> 00:25:21,960 Center it. 174 00:25:21,960 --> 00:25:26,960 Okay, good. 175 00:25:26,960 --> 00:25:35,960 Okay. 176 00:25:35,960 --> 00:25:42,960 Over here, the problem will give you some information. 177 00:25:42,960 --> 00:25:58,960 The par value on the thousand of the company's bonds 178 00:25:58,960 --> 00:26:15,960 outstanding is $12 million. 179 00:26:15,960 --> 00:26:36,960 The number of preferred shares is $120,000. 180 00:26:36,960 --> 00:26:56,960 And the number of common shares is $22 million. 181 00:26:56,960 --> 00:27:20,960 Common share is outstanding, I should say. 182 00:27:20,960 --> 00:27:24,960 Wrap that text. 183 00:27:24,960 --> 00:27:34,960 And again, I'm going to upload this. 184 00:27:34,960 --> 00:27:40,960 These are the pieces of the numbers that you will need 185 00:27:40,960 --> 00:27:47,960 to get your answers, your information. 186 00:27:47,960 --> 00:28:01,960 Wait, let me do this. 187 00:28:01,960 --> 00:28:20,960 Fix some of this formatting. That turned spectacularly bad. 188 00:28:20,960 --> 00:28:35,960 Let me do something here. 189 00:28:35,960 --> 00:28:56,960 I apologize for this, I just want to make sure that... 190 00:28:56,960 --> 00:29:13,960 There we go. That should help a little bit here. 191 00:29:13,960 --> 00:29:17,960 Merge and center. 192 00:29:17,960 --> 00:29:22,960 Let's try that one more time. 193 00:29:22,960 --> 00:29:26,960 Merge and center. Merge and center. 194 00:29:26,960 --> 00:29:35,960 I'm trying here to get that all fitted in, and it's not being too cooperative. 195 00:29:35,960 --> 00:29:51,960 I'll just do it that way. That way nothing is stretched out too much. 196 00:29:51,960 --> 00:29:58,960 This is just making it a little easier for you to see the information. 197 00:29:58,960 --> 00:30:01,960 Okay, you just fill in these numbers. 198 00:30:01,960 --> 00:30:10,960 Now you're not going to touch the tax rate, just leave that at 21%. 199 00:30:10,960 --> 00:30:17,960 The cost of debt will automatically feed to here. 200 00:30:17,960 --> 00:30:21,960 You calculate the cost of debt and it will show up here. 201 00:30:21,960 --> 00:30:26,960 And then the after-tax cost of debt will automatically show up 202 00:30:26,960 --> 00:30:35,960 because it will take this number times this number. 203 00:30:35,960 --> 00:30:40,960 The preferred dividend you put in from the narrative. 204 00:30:40,960 --> 00:30:44,960 The par value you put in from the narrative. 205 00:30:44,960 --> 00:30:47,960 The price of the preferred you put in. 206 00:30:47,960 --> 00:30:53,960 The common dividend, the growth rate. 207 00:30:53,960 --> 00:31:01,960 Oh, that was 1.5%. 208 00:31:01,960 --> 00:31:05,960 Glad I did that. That would have been difficult. 209 00:31:05,960 --> 00:31:09,960 The common stock, the dividend, the price per share. 210 00:31:09,960 --> 00:31:17,960 You fill in these numbers, the ones that aren't shaded. 211 00:31:17,960 --> 00:31:20,960 The 21% is just given. 212 00:31:20,960 --> 00:31:24,960 You calculate from the bond narrative here. 213 00:31:24,960 --> 00:31:31,960 That gives you that number right there. 214 00:31:31,960 --> 00:31:59,960 Give me a second here. 215 00:31:59,960 --> 00:32:15,960 Nope, wrong place for that line. 216 00:32:15,960 --> 00:32:23,960 There you go. 217 00:32:23,960 --> 00:32:27,960 And this box gives you the information. 218 00:32:27,960 --> 00:32:34,960 Insert, illustration, shapes, another arrow. 219 00:32:34,960 --> 00:32:59,960 This box is where you put all that information. 220 00:32:59,960 --> 00:33:12,960 And all this information right here comes from this box right here. 221 00:33:12,960 --> 00:33:32,960 I wish it wouldn't keep taking that away. 222 00:33:32,960 --> 00:33:53,960 Okay. 223 00:33:53,960 --> 00:34:01,960 There you go. 224 00:34:01,960 --> 00:34:08,960 Now let me explain how the machinery of this works. 225 00:34:08,960 --> 00:34:10,960 Okay. 226 00:34:10,960 --> 00:34:11,960 The cost. 227 00:34:11,960 --> 00:34:18,960 You're going to put in all the information to do a bond yield calculation. 228 00:34:18,960 --> 00:34:27,960 That's this information right here just like we did before. 229 00:34:27,960 --> 00:34:29,960 102 on the 100. 230 00:34:29,960 --> 00:34:32,960 Price, par value, you leave alone. 231 00:34:32,960 --> 00:34:35,960 It's 100 on the, it's 100. 232 00:34:35,960 --> 00:34:37,960 It's 1,000, but it's 100 on the 100. 233 00:34:37,960 --> 00:34:40,960 And then the payments per year, you could put in one if you wanted. 234 00:34:40,960 --> 00:34:42,960 Just leave it at two. 235 00:34:42,960 --> 00:34:45,960 And then you put in the term of the bond. 236 00:34:45,960 --> 00:34:50,960 Now since it's in 2031, that's eight years. 237 00:34:50,960 --> 00:34:53,960 You put that in and these two will automatically calculate. 238 00:34:53,960 --> 00:34:58,960 And there's your Uncle Bob, the 4.39%. 239 00:34:58,960 --> 00:35:08,960 That will show up up here. 240 00:35:08,960 --> 00:35:15,960 Your cost will be the bond price, the bond yield times one minus the tax rate. 241 00:35:15,960 --> 00:35:19,960 It will do it automatically for you. 242 00:35:19,960 --> 00:35:27,960 The same will be true for calculating the price, the cost of the preferred stock. 243 00:35:27,960 --> 00:35:34,960 If you put these numbers in correctly here, all these numbers in properly here, 244 00:35:34,960 --> 00:35:39,960 it will give you, it will automatically calculate the dividend divided by the 245 00:35:39,960 --> 00:35:44,960 current price of preferred stock. 246 00:35:44,960 --> 00:35:47,960 The common stock, it will do the same thing. 247 00:35:47,960 --> 00:35:56,960 If you put these numbers in properly here, it will automatically do D1 over R plus G, 248 00:35:56,960 --> 00:35:59,960 D1 over P zero plus G. 249 00:35:59,960 --> 00:36:06,960 It will do it all for you. 250 00:36:06,960 --> 00:36:18,960 Now the market values. 251 00:36:18,960 --> 00:36:26,960 The value of the bonds is $12 million. 252 00:36:26,960 --> 00:36:35,960 This will calculate automatically because each bond is worth, 253 00:36:35,960 --> 00:36:41,960 the price of the bonds was 102.4 on the 100. 254 00:36:41,960 --> 00:36:46,960 So it will take the total value of the bonds times 102 on the 100. 255 00:36:46,960 --> 00:36:51,960 It will do it for you. So you don't have to calculate that. 256 00:36:51,960 --> 00:36:55,960 Number of preferred shares. 257 00:36:55,960 --> 00:37:01,960 You get that from over here. Well, number of preferred shares. 258 00:37:01,960 --> 00:37:05,960 I could put that in there. 259 00:37:05,960 --> 00:37:10,960 I wonder if I could sneak that in there. 260 00:37:10,960 --> 00:37:12,960 Let me do that. 261 00:37:12,960 --> 00:37:17,960 I'm going to insert to make that so you don't have to do that. 262 00:37:17,960 --> 00:37:19,960 Insert. 263 00:37:19,960 --> 00:37:22,960 By the way, I have a reason for doing all of this. 264 00:37:22,960 --> 00:37:26,960 You're actually, the best way to learn something is to see it being done 265 00:37:26,960 --> 00:37:29,960 instead of talking about it. 266 00:37:29,960 --> 00:37:32,960 So you're seeing a bunch of little tricks here. 267 00:37:32,960 --> 00:37:38,960 Shift cells down. 268 00:37:38,960 --> 00:37:48,960 Number of preferred shares. 269 00:37:48,960 --> 00:37:53,960 And put in the 12 million. 270 00:37:53,960 --> 00:38:03,960 Is that how many there were? 271 00:38:03,960 --> 00:38:05,960 12 million, I think. 272 00:38:05,960 --> 00:38:09,960 How many preferred shares did I say there were? 273 00:38:09,960 --> 00:38:17,960 120,000. 274 00:38:17,960 --> 00:38:29,960 So I can make that number. 275 00:38:29,960 --> 00:38:40,960 That's a number. 276 00:38:40,960 --> 00:38:44,960 And then it will get, take care of that for you. 277 00:38:44,960 --> 00:38:57,960 The market value of the preferred shares will be equal to... 278 00:38:57,960 --> 00:38:59,960 Let me fix that. 279 00:38:59,960 --> 00:39:10,960 Equals the price of the preferred times the number of preferred outstanding. 280 00:39:10,960 --> 00:39:16,960 So you don't have to calculate any of these. 281 00:39:16,960 --> 00:39:30,960 Because the market value of the stock will just be the number of shares outstanding. 282 00:39:30,960 --> 00:39:33,960 Let me fix that one for you. 283 00:39:33,960 --> 00:39:39,960 Oh, there it is. 284 00:39:39,960 --> 00:39:52,960 Number of shares outstanding times the price per share, which is already over here. 285 00:39:52,960 --> 00:39:58,960 So this number will calculate automatically. 286 00:39:58,960 --> 00:40:06,960 And then this number will be just adding up these numbers. 287 00:40:06,960 --> 00:40:19,960 So the weights are going to be equal to the market value of the debt divided by the total as an absolute reference. 288 00:40:19,960 --> 00:40:29,960 And then I can just go down the line and calculate each of them. 289 00:40:29,960 --> 00:40:33,960 So you don't have to calculate those. 290 00:40:33,960 --> 00:40:43,960 The weighted average cost of capital will automatically calculate as the sum product of each cost times its weight. 291 00:40:43,960 --> 00:40:47,960 That will be automatically calculated. 292 00:40:47,960 --> 00:40:55,960 So if there's a shaded block, a shaded cell, you don't need to put anything there. 293 00:40:55,960 --> 00:40:58,960 It will do it itself. 294 00:40:58,960 --> 00:41:09,960 And the ones that you do put in, you just include those from the narrative. 295 00:41:09,960 --> 00:41:12,960 I'm formatting it as I go along here. 296 00:41:12,960 --> 00:41:21,960 You just read the narrative and you put the numbers in where they belong. 297 00:41:21,960 --> 00:41:32,960 That should give you your weighted average cost of capital that fast. 298 00:41:32,960 --> 00:41:43,960 Now, if you are using a PC, you can get the weights another way. 299 00:41:43,960 --> 00:41:50,960 If you are using a PC, you don't have to do this calculation. 300 00:41:50,960 --> 00:42:00,960 You just highlight the components and you'll see a little chart icon show up. 301 00:42:00,960 --> 00:42:06,960 If you click on it, you'll get conditional formatting. 302 00:42:06,960 --> 00:42:14,960 Click on totals and go over here to percentage, percent of total. 303 00:42:14,960 --> 00:42:24,960 The little yellow will say that it will put the percentages over in the next column. 304 00:42:24,960 --> 00:42:27,960 And it will do it on its own. 305 00:42:27,960 --> 00:42:36,960 But if you don't have a PC, then you have to go back to the other way of doing it. 306 00:42:36,960 --> 00:42:40,960 Get the same answer. 307 00:42:40,960 --> 00:42:45,960 But conditional formatting can do some amazing things. 308 00:42:45,960 --> 00:42:52,960 And of course, so does some product here. 309 00:42:52,960 --> 00:42:56,960 That's how you calculate a weighted average cost of capital. 310 00:42:56,960 --> 00:42:58,960 This is the Excel way. 311 00:42:58,960 --> 00:43:03,960 It looks a little bit tedious, but I guarantee you that doing all of this by hand 312 00:43:03,960 --> 00:43:10,960 would be a lot like work, doing all those calculations along the way. 313 00:43:10,960 --> 00:43:19,960 This way, all you have to do is put in the stock information that you're given here. 314 00:43:19,960 --> 00:43:21,960 You put those in. 315 00:43:21,960 --> 00:43:30,960 For the bond, you have to put in the term, how many years are left, the coupon rate, 316 00:43:30,960 --> 00:43:34,960 and that's it. 317 00:43:34,960 --> 00:43:43,960 You put in the term, how long it's got left on it, the coupon rate, and the price on the 100. 318 00:43:43,960 --> 00:43:54,960 Over here, you just put in the par value of the bonds, and then it will calculate that on its own 319 00:43:54,960 --> 00:43:57,960 from the information you put in to get the yield. 320 00:43:57,960 --> 00:44:00,960 Now notice that you have to do these in the order that I said. 321 00:44:00,960 --> 00:44:04,960 From the left to the right, you're filling in information. 322 00:44:04,960 --> 00:44:11,960 And then you just fill in the other information along here from that narrative, 323 00:44:11,960 --> 00:44:16,960 and everything will calculate for you. 324 00:44:16,960 --> 00:44:20,960 You want to try it this weekend, I recommend that you give it a stab. 325 00:44:20,960 --> 00:44:24,960 Just throw in some numbers and see what happens. 326 00:44:24,960 --> 00:44:34,960 This will save your bacon on an exam or a quiz. 327 00:44:34,960 --> 00:44:39,960 And believe me, this is a lot easier to do than before we were using Excel. 328 00:44:39,960 --> 00:44:46,960 We did all these calculating the costs one by one, and then the market values one by one. 329 00:44:46,960 --> 00:44:55,960 Along the way, we had to get the yield to maturity on the bond by a calculator or a hand calculation. 330 00:44:55,960 --> 00:45:00,960 I mean, it does look a little bit intense, but trust me when I tell you, 331 00:45:00,960 --> 00:45:08,960 if you just get all the information in from left to right, everything will work just fine for you. 332 00:45:08,960 --> 00:45:14,960 You could even put in another tax rate if they give you one in the homework. 333 00:45:14,960 --> 00:45:18,960 But everything else, it just flows very nicely. 334 00:45:18,960 --> 00:45:21,960 Trust me on that. 335 00:45:21,960 --> 00:45:31,960 So I'm going to save this, and I'm going to upload it to your Canvas files and in the spreadsheets, 336 00:45:31,960 --> 00:45:37,960 and you will be very happy for this to be there. 337 00:45:37,960 --> 00:45:43,960 And the format of a question that I would give you would be right along the lines of the narrative. 338 00:45:43,960 --> 00:45:47,960 I don't throw curveballs at you like that. 339 00:45:47,960 --> 00:45:52,960 So if you can understand how the narrative translates to the numbers 340 00:45:52,960 --> 00:46:00,960 that you fill in in the white cells during business. 341 00:46:00,960 --> 00:46:27,960 Now, the next thing I'm going to talk about is something called the equity breakpoint. 342 00:46:27,960 --> 00:46:36,960 There's a term that I will bring up on Monday called optimal capital structure. 343 00:46:36,960 --> 00:46:46,960 It is the combination of debt and equity that minimizes the weighted average cost of capital. 344 00:46:46,960 --> 00:46:58,960 It's the combination of debt and equity that minimizes the weighted average cost of capital. 345 00:46:58,960 --> 00:47:13,960 So if I were to draw a curve, a weighted average cost of capital curve. 346 00:47:13,960 --> 00:47:18,960 Here's the weighted average cost of capital on the vertical axis, 347 00:47:18,960 --> 00:47:25,960 and here is the percent of debt on the horizontal axis, 348 00:47:25,960 --> 00:47:30,960 where this would be a company that is 100% debt right here, 349 00:47:30,960 --> 00:47:34,960 and this would be a company that's 0% debt. 350 00:47:34,960 --> 00:47:40,960 Put another way, the leftmost tick mark would be a company that's pure equity. 351 00:47:40,960 --> 00:47:45,960 The rightmost 100% would be a company that's pure debt. 352 00:47:45,960 --> 00:47:50,960 In between those, if I have only equity, 353 00:47:50,960 --> 00:48:05,960 then the weighted average cost of capital would just be the cost of common stock. 354 00:48:05,960 --> 00:48:15,960 Weight of debt times the cost after tax cost of debt plus the weight of equity times the cost of equity. 355 00:48:15,960 --> 00:48:25,960 In other words, if the weight of debt is 0, then W sub E is 100% times the cost of debt. 356 00:48:25,960 --> 00:48:31,960 On the other hand, if the company is 100% debt, 357 00:48:31,960 --> 00:48:35,960 then the second term W sub E times R sub S is 0, 358 00:48:35,960 --> 00:48:44,960 so at 100%, that would be the after tax cost of debt. 359 00:48:44,960 --> 00:48:50,960 So what a weighted average cost of capital curve looks like is something like this. 360 00:48:50,960 --> 00:48:54,960 As you increase the amount of debt, debt is cheaper than equity at first, 361 00:48:54,960 --> 00:48:58,960 and your weighted average cost of capital goes down. 362 00:48:58,960 --> 00:49:02,960 You're using more debt, less equity, so the cheaper debt pulls the curve down. 363 00:49:02,960 --> 00:49:05,960 But there's a point where your creditors are going to say, 364 00:49:05,960 --> 00:49:10,960 you're getting awful frisky with debt, and we're going to start charging you more for debt, 365 00:49:10,960 --> 00:49:14,960 and that begins to pull the curve back up. 366 00:49:14,960 --> 00:49:21,960 This bottoming out point is called the optimal capital structure. 367 00:49:21,960 --> 00:49:31,960 It's a combination of debt and equity that minimizes the weighted average cost of capital curve, 368 00:49:31,960 --> 00:49:40,960 the optimal capital structure, and companies spend a lot of time to find out exactly where that is. 369 00:49:40,960 --> 00:49:43,960 And it's not the same for all companies. 370 00:49:43,960 --> 00:49:49,960 Some companies, 20% debt, 80% equity is where it bottoms out. 371 00:49:49,960 --> 00:49:53,960 Some, 40% debt, 60% equity. 372 00:49:53,960 --> 00:49:58,960 Some, 80% debt, 20% equity. 373 00:49:58,960 --> 00:50:11,960 But once they find it, they really try hard to hold that cost, that combination of debt and equity. 374 00:50:11,960 --> 00:50:21,960 So you see up here, if we were to say this company has found its optimal capital structure, 375 00:50:21,960 --> 00:50:27,960 it's 16% debt and then 84% equity. 376 00:50:27,960 --> 00:50:38,960 Really? No, I'm sorry. It's 1.6% debt and 98.4% equity. 377 00:50:38,960 --> 00:50:48,960 We could just, look, companies are probably at any given time period near their optimal. 378 00:50:48,960 --> 00:50:57,960 So when they start to finance new projects, grow their retained earnings, 379 00:50:57,960 --> 00:51:04,960 they have to finance those by the same combination of debt and equity. 380 00:51:04,960 --> 00:51:10,960 So if this company is, let's say, well, let's just do a simple example. 381 00:51:10,960 --> 00:51:21,960 20% debt and 80% equity. 382 00:51:21,960 --> 00:51:31,960 When they take on new money, they would use 20% debt and 80% equity 383 00:51:31,960 --> 00:51:38,960 in order to stay at the same optimal capital structure. 384 00:51:38,960 --> 00:51:41,960 This is called the equity breakpoint. 385 00:51:41,960 --> 00:51:52,960 How much extra money could we raise before we'd have run out of equity? 386 00:51:52,960 --> 00:52:04,960 So the way the formula works is it's the change in retained earnings 387 00:52:04,960 --> 00:52:13,960 divided by the equity percent. 388 00:52:13,960 --> 00:52:30,960 So in a case like this, let's say that the company anticipates change in growing by $30 million. 389 00:52:30,960 --> 00:52:54,960 Then its equity breakpoint would be $30 million over.80. 390 00:52:54,960 --> 00:53:07,960 If I were to work that out, the company's equity breakpoint would be, pull up a calculator, 391 00:53:07,960 --> 00:53:22,960 $30 million divided by.8. 392 00:53:22,960 --> 00:53:36,960 In other words, they could run up projects using $37,500,000 of equity. 393 00:53:36,960 --> 00:53:39,960 They could do that. 394 00:53:39,960 --> 00:53:45,960 But they would also have to use 20% debt, and they could grow, 395 00:53:45,960 --> 00:53:50,960 they could change their retained earnings by a considerable amount of money. 396 00:53:50,960 --> 00:53:58,960 $37,500,000 would be 80% of it, and then the debt would be the rest of it. 397 00:53:58,960 --> 00:54:00,960 Just know the equity breakpoint. 398 00:54:00,960 --> 00:54:05,960 I'll talk more about it in the next lecture on Monday. 399 00:54:05,960 --> 00:54:10,960 But the last thing that I'm going to show you today, and that's just a side note. 400 00:54:10,960 --> 00:54:12,960 Let me save this for you. 401 00:54:12,960 --> 00:54:23,960 What I want to show you here is in reality, this is a huge thing. 402 00:54:23,960 --> 00:54:33,960 Now this data is revised every January by the Stern School of Business at New York University. 403 00:54:33,960 --> 00:54:43,960 And we're all grateful, both in academia and in industries, because they do pretty much 404 00:54:43,960 --> 00:54:48,960 what I just showed you here, down to the Excel spreadsheets. 405 00:54:48,960 --> 00:54:51,960 So they show you by industries. 406 00:54:51,960 --> 00:54:58,960 They will give you the betas of the industries. 407 00:54:58,960 --> 00:55:02,960 They will give you the cost of equity, which they calculate just like I did, 408 00:55:02,960 --> 00:55:04,960 except they do it on an industry level. 409 00:55:04,960 --> 00:55:08,960 So in advertising, they use 58 companies to do it. 410 00:55:08,960 --> 00:55:11,960 They got the average beta of those companies. 411 00:55:11,960 --> 00:55:17,960 They calculated the cost of equity, and then the equity over the debt plus equity, 412 00:55:17,960 --> 00:55:23,960 just like I did here, except I put preferred, I separated out preferred and common. 413 00:55:23,960 --> 00:55:26,960 And then they go, well, they do the standard deviation. 414 00:55:26,960 --> 00:55:34,960 And then they do the cost of debt, cost of debt, just like I did in the spreadsheet. 415 00:55:34,960 --> 00:55:38,960 And then the tax rate for the after-tax cost of debt. 416 00:55:38,960 --> 00:55:40,960 See that? 417 00:55:40,960 --> 00:55:42,960 And notice something. 418 00:55:42,960 --> 00:55:45,960 I got to come back to that. 419 00:55:45,960 --> 00:55:47,960 They don't use 21%. 420 00:55:47,960 --> 00:55:50,960 That is just theoretical. 421 00:55:50,960 --> 00:55:52,960 That's what the law says. 422 00:55:52,960 --> 00:55:57,960 They dig in and they see what these companies really paid. 423 00:55:57,960 --> 00:56:00,960 And it's a hell of a lot less than 21%. 424 00:56:00,960 --> 00:56:07,960 You could look down that list, and the only one I see right off the top is cable TV, 425 00:56:07,960 --> 00:56:13,960 which paid more, and that was because of certain special taxes on cable. 426 00:56:13,960 --> 00:56:19,960 But do you see how virtually every one of those actual effective tax rates 427 00:56:19,960 --> 00:56:24,960 is ridiculously low anymore? 428 00:56:24,960 --> 00:56:29,960 That's the whole problem with these insane debts you guys are going to take on, 429 00:56:29,960 --> 00:56:34,960 and you have to pay it, the national debt, the budget deficits every year. 430 00:56:34,960 --> 00:56:39,960 It's because these rates, when I did this like 10 years ago, 431 00:56:39,960 --> 00:56:43,960 these numbers were in the 20s and 30s. 432 00:56:43,960 --> 00:56:48,960 And now their effective tax rates are down in the single digits 433 00:56:48,960 --> 00:56:50,960 and in the teens. 434 00:56:50,960 --> 00:56:52,960 That's enough bitching about that. 435 00:56:52,960 --> 00:56:56,960 But they take the cost of debt times the actual tax rates, which I don't do. 436 00:56:56,960 --> 00:56:59,960 I just use the statutory 21%. 437 00:56:59,960 --> 00:57:05,960 But then they get the debt over the debt plus equity, which I did, 438 00:57:05,960 --> 00:57:11,960 and then they get the weighted average cost of capital. 439 00:57:11,960 --> 00:57:14,960 They don't even call it the WAC. 440 00:57:14,960 --> 00:57:16,960 There it is. 441 00:57:16,960 --> 00:57:19,960 Now, first of all, notice the numbers. 442 00:57:19,960 --> 00:57:27,960 They are actually, for the most part, very tight, around 9 to 10%. 443 00:57:27,960 --> 00:57:32,960 You've got a few down here, like banks. 444 00:57:32,960 --> 00:57:44,960 Banks, retail versus the money centers, regional versus the money centers. 445 00:57:44,960 --> 00:57:47,960 Good grief, those are low. 446 00:57:47,960 --> 00:57:50,960 Poor bankers may suffer so much. 447 00:57:50,960 --> 00:57:51,960 God. 448 00:57:51,960 --> 00:57:56,960 Okay, but notice for the most part the numbers are very tight between 9 and 10. 449 00:57:56,960 --> 00:58:02,960 There are a few that are up around 11, electrical, and there was one here. 450 00:58:02,960 --> 00:58:04,960 I think software development. 451 00:58:04,960 --> 00:58:08,960 Healthcare is a little higher on the weighted average cost of capital. 452 00:58:08,960 --> 00:58:16,960 And then information services are higher. 453 00:58:16,960 --> 00:58:19,960 And I'm not sure about that one, though. 454 00:58:19,960 --> 00:58:24,960 You've got a few up here, but they are actually fairly tightly packed. 455 00:58:24,960 --> 00:58:31,960 You see some of these are lower, and that's the result of effective tax rates 456 00:58:31,960 --> 00:58:36,960 that are very generous on these. 457 00:58:36,960 --> 00:58:38,960 Here's one, 12. 458 00:58:38,960 --> 00:58:42,960 Huh, retail, building supplies at the retail. 459 00:58:42,960 --> 00:58:47,960 In other words, your Home Depot and stuff like that. 460 00:58:47,960 --> 00:58:55,960 Those industries that produce that stuff are, okay, semiconductors, they take a good hit. 461 00:58:55,960 --> 00:58:58,960 That's one of the highest, semiconductor industry. 462 00:58:58,960 --> 00:59:03,960 And yet we bitch about, we've got to bring all that semiconductor industry back to the U.S. 463 00:59:03,960 --> 00:59:08,960 from China, and then we've got a high weighted average cost of capital for it, 464 00:59:08,960 --> 00:59:11,960 which is a high weighted average cost of capital, I would bet, 465 00:59:11,960 --> 00:59:15,960 because their effective tax rate is high. 466 00:59:15,960 --> 00:59:17,960 Let me look here real quick. 467 00:59:17,960 --> 00:59:23,960 Semiconductors, are you kidding me? 468 00:59:23,960 --> 00:59:27,960 Yeah, it's not that bad. 469 00:59:27,960 --> 00:59:29,960 Here's, that's interesting. 470 00:59:29,960 --> 00:59:34,960 Okay, though, however, the bottom line, though, is this, 471 00:59:34,960 --> 00:59:40,960 that the average weighted average cost of capital is 9.25%. 472 00:59:40,960 --> 00:59:43,960 That was at the beginning of this year. 473 00:59:43,960 --> 00:59:49,960 Now, interest rates went up in the economy over the year, but now they're sliding again, 474 00:59:49,960 --> 00:59:52,960 so I'm not sure what to say about next year. 475 00:59:52,960 --> 00:59:58,960 However, if you want to pull a weighted average cost of capital out for a discount rate, 476 00:59:58,960 --> 01:00:02,960 you probably, 9.25% would be a decent number to use, 477 01:00:02,960 --> 01:00:09,960 just as a stab for doing a discount of finding the present value of future expected cash flows. 478 01:00:09,960 --> 01:00:14,960 You're not going to go wrong if you use about 9.25% for it. 479 01:00:14,960 --> 01:00:21,960 One interesting thing, just to finish up, I talk about beta as if it's something very important. 480 01:00:21,960 --> 01:00:23,960 Well, here we see it. 481 01:00:23,960 --> 01:00:27,960 You're actually seeing, industry by industry, across the economy, 482 01:00:27,960 --> 01:00:30,960 this is about all of it. 483 01:00:30,960 --> 01:00:33,960 Is there something you notice about these betas? 484 01:00:33,960 --> 01:00:35,960 Now, these are industry. 485 01:00:35,960 --> 01:00:41,960 In other words, they're the weighted average betas of all the companies that are polled. 486 01:00:41,960 --> 01:00:48,960 Like, for example, they, for polling for advertising, they took 58 companies, 487 01:00:48,960 --> 01:00:54,960 and they found their average beta, and they took 77 companies for the aerospace defense. 488 01:00:54,960 --> 01:00:56,960 Do you notice something about those betas? 489 01:00:56,960 --> 01:01:03,960 Is there anything that just strikes you just visually from looking at those betas? 490 01:01:03,960 --> 01:01:06,960 Anything you see that looks? 491 01:01:06,960 --> 01:01:08,960 They're all overvalued. 492 01:01:08,960 --> 01:01:09,960 They're all what? 493 01:01:09,960 --> 01:01:10,960 Overvalued. 494 01:01:10,960 --> 01:01:14,960 No, that's the PE ratio, just beta. 495 01:01:14,960 --> 01:01:16,960 I think I know what you're saying, though. 496 01:01:16,960 --> 01:01:17,960 They're above one. 497 01:01:17,960 --> 01:01:19,960 Isn't that interesting? 498 01:01:19,960 --> 01:01:28,960 Across the industries, the average beta is riskier than the market portfolio, the world portfolio. 499 01:01:28,960 --> 01:01:36,960 And that's why you wouldn't want to make a portfolio that was industry-specific, 500 01:01:36,960 --> 01:01:44,960 because you would probably guarantee that it had a beta that was higher than one. 501 01:01:44,960 --> 01:01:50,960 You might like that, but at the same time, by just focusing on an industry, 502 01:01:50,960 --> 01:01:55,960 you are going to get a beta probably above one if it's most of these. 503 01:01:55,960 --> 01:01:56,960 Look at this one. 504 01:01:56,960 --> 01:02:04,960 Auto and truck, the average beta of 51 companies, or how many is that? 505 01:02:04,960 --> 01:02:06,960 31 companies. 506 01:02:06,960 --> 01:02:10,960 The average beta is above 1.5. 507 01:02:10,960 --> 01:02:18,960 So investing only in the auto industry is dooming your portfolio to have a lot of risk. 508 01:02:18,960 --> 01:02:31,960 In fact, if you want to avoid risk, regional banks, they're very low risk, surprisingly. 509 01:02:31,960 --> 01:02:36,960 And one of the reasons for that is because of this. 510 01:02:36,960 --> 01:02:45,960 Banks are required to keep Tier 1 capital, super safe capital, cash and treasury bills. 511 01:02:45,960 --> 01:02:59,960 So by the very nature of what is in the bank, cash and T-bills, a lot of them, the banks are very safe investments. 512 01:02:59,960 --> 01:03:03,960 Yeah, asset management, same thing. 513 01:03:03,960 --> 01:03:13,960 But okay, so anyway, I've uploaded this, by the way, in case you're interested in just kind of having a look at it just for personal investment purposes. 514 01:03:13,960 --> 01:03:24,960 And I've got the website down here where you can go and get the data yourself to refresh it when January comes. 515 01:03:24,960 --> 01:03:26,960 It usually shows up in early February. 516 01:03:26,960 --> 01:03:30,960 They run the numbers using an Excel sheet. 517 01:03:30,960 --> 01:03:35,960 They get these numbers and then you have this data for your own purposes. 518 01:03:35,960 --> 01:03:37,960 Other than that, that's all I have for you today. 519 01:03:37,960 --> 01:04:06,960 I thank you.