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Jeff Williams
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Jeff is a mortgage broker, published author and educator. He is a value/dividend investor who specializes in long term growth. He lives in a beautiful seaside town in BC Canada with his wife and two children.
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  • Union Pacific: A Fundamental Analysis  0 comments
    Nov 19, 2013 10:22 PM | about stocks: UNP

    Understanding Union Pacific's (NYSE:UNP) cost of debt, cost of equity and WACC is an important factor in stock research. Using these formulas an investor will understand how much the shareholder should expect in return for the stock over the long-term, how much the company pays for its debt and how much the company needs in return to break even on its investments.

    Cost of Debt

    The cost of debt is the effective rate that a company pays on its total debt.

    As a company acquires debt through various bonds, loans and other forms of debt, the cost of debt is a useful metric. It gives an idea as to the overall rate being paid by the company to use debt financing. This measure is also useful because it gives investors an idea as to the riskiness of the company compared with others. The higher the cost of debt is, the higher the risk to the company.

    8. Cost of debt (before tax) = Corporate Bond rate of company's bond rating.

    • Union Pac 4.163% = 4.163%
    • Current cost of Debt as of November 19th, 2013 = 4.163%

    9. Current tax rate

    • 2013 TTM - = 37.55%

    2013 TTM Union Pacific has averaged tax rate of 37.55%

    10. Cost of Debt (After Tax) = (Cost of Debt Before Tax) (1 - Tax Rate)

    The Cost of Debt is the effective rate that a company pays on its current debt after tax.

    • .04163 x (1 - .3755) = Cost of debt after tax

    The cost of debt after tax for Union Pacific is 2.6%

    To read more:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: UNP
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