Cost of Capital, Capital Structure, and Capital Budgeting Analysis - McKesson Corporation In this project, you are supposed to be a financial manager to apply the knowledge learn from Financial Manage

1.0 – Cover Page Cost of Capital, Capital Structure, and Capital Budgeting Analysis - McKesson Corporation In this project, you are supposed to be a financial manager to apply the knowledge learn from Financial Manage 1

Financial Analysis Report

McKesson Corporation

Financial Management, FINC 6352 - 15408

Prof. Xi Ning

Friday, July 29, 2022

Group 13

Analyst:

Erica Newman & Vannesa Dickson

source: videoblocks.com

1.1– Table of Contents

1.0 – Executive Summary 2

2.0 – Financial Ratio Analysis 4

3.0 – Estimated Capital Structure 6

4.0 – Weighted Average Cost of Capital (WACC) 7

5.0 – Cash Flow Estimation 9

6.0 – Capital Budgeting Analysis 10

7.0 – Project Recommendation 12

8.0 – References 13

9.0 - Appendix 14

1.0 – Executive Summary

McKesson Corporation provides pharmaceuticals and medical supplies in the United States and internationally. The company operates in two segments, McKesson Distribution Solutions and McKesson Technology Solutions. The McKesson Distribution Solutions segment distributes branded and generic pharmaceutical medications, and other healthcare-related products; and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. This segment also provides specialty pharmaceutical solutions for pharmaceutical manufacturers; and medical-surgical supply distribution, logistics, and other services to healthcare providers. In addition, this segment operates retail pharmacy chains in Europe and Canada, as well as supports independent pharmacy networks in North America and Europe; and supplies integrated pharmacy management systems, automated dispensing systems, and related services to retail, outpatient, central fill, specialty, and mail order pharmacies. This segment serves retail national accounts, including national and regional chains, food/medication combinations, mail order pharmacies, and mass merchandisers; and institutional healthcare providers, such as hospitals, health systems, integrated delivery networks, and long-term care providers, as well as offers its services to pharmaceutical manufacturers.

Key Metrics

Sector Healthcare

Industry Pharmaceutical

Share Price

(07/01/22) $150.85

Target Price $212.35

Upside +41.30%

52 Week Share $114.53 -

Price Range: $199.43

Exchange Traded NYSE

Ticker MCK

Dividend Yield .75%

Annual Dividend $1.12

# Shares Out 212m

Key Ratio (As of 01 July 2022)

Market Cap 31.35B

EPS $8.43

P/E 17.54

Beta (5-year avg.) 1.05

Peer Companies:

Cardinal Health, Inc. (NYSE:CAH);

AmerisourceBergen

Corporation (NYSE:ABC)

Analysts

Erica Newman

Vannesa Dickson

The McKesson Technology Solutions segment provides clinical, financial, and supply chain management solutions to healthcare organizations. McKesson Corporation was founded in 1833 and is headquartered in San Francisco, California.

1.1 – Company Overview

1.2 – Industry Overview

2.0 – Financial Ratio Analysis

2.1 – Liquidity Ratios

2.2 – Asset Management Ratios

2.3 – Debt Management Ratios

2.4 – Profitability Ratios

2.5 – Market Value Ratios

3.0 – Estimated Capital Structure

3.1 – Capital Structure Estimation Analysis

4.0 – Weighted Average Cost of Capital (WACC)

4.1 – Component Cost of Debt Estimation

4.2 – YTM –Yield to Maturity Approach 4.3 – Before-Tax Component Cost of Debt

4.4 – After-Tax Component Cost of Debt

4.5 –Component Cost of Preferred Stock Estimation

4.6 – Component Cost of Common Equity Estimation

4.7 – CAPM Cost of Equity

4.7.1 – Bond Yield plus Risk Premium Cost of Equity

4.7.2 – Average Cost of Equity

4.8 – Weighted Average Cost of Capital (WACC) 5.0 – Cash Flow Estimation

5.1 – Depreciation Basis

5.2 Annual Depreciation of the New Project 5.3 Annual Cash Flow Estimate 5.4 – Timeline of Cash Flows

6.0 – Capital Budgeting Analysis

6.1 Capital Budgeting Analysis Techniques

6.2 Net Present Value 6.3 – Internal Rate of Return

6.4 Modified Internal Rae of Return

6.5 – Profitability Index

6.4 Payback Period and Discounted Payback Period 6.5 – Payback for Project 6.4 Discounted Payback 6.5 – Sensitivity Analysis

7.0 – Project Recommendation

8.0 – References

Accounting, F. (2019, March 4). MBA SWOT : Nike in China (Abridged) SWOT Analysis & Matrix - strengths, weaknesses, opportunities & threats. EMBA Pro for Executive MBA Professionals. https://embapro.com/frontpage/swotcase/3775-nike-china

World Bank. (2021). Ease of Doing Business.

https://www.doingbusiness.org/en/data/exploreeconomies/china

9.0 - Appendix