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You are to calculate Weighted-Average-Cost-of-Capital (WACC) for Southwest Airlines using the attached data collected from the Bloomberg Terminal on April 21, 2019. In the supplemental Excel file, note that the firm has eight long-term bond issues outstanding. The spreadsheet contains the required data on book value, market prices and yields on these instruments. Assume the firm faces a marginal tax rate of 21% (the current federal flat tax rate for corporations). Also, assume that the long-term return on the stock market is 12% (as in Chapter 12), and that the return on short-term T-bills (I month) represents the risk-free rate, near April 21 this rate is 2.45%.
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finc300_s19_luv_bonddata_bbm_4_21_19.xls

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FINC 300
Integrated Core Finance
Spring 2019
Homework
Estimate WACC for Southwest Airlines
Bloomberg Data on Southwest Airline Bonds; April 21, 2019
Name
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Southwest Airlines Co
Ticker Coupon
LUV
3.000
LUV
2.650
LUV
3.450
LUV
2.750
LUV
2.750
LUV
6.150
LUV
7.375
LUV
6.650
Currency
USD
USD
USD
USD
USD
USD
USD
USD
Issue Date
11/4/2016
11/5/2015
11/16/2017
11/16/2017
11/6/2014
10/3/2007
2/28/1997
10/3/2007
Maturity
Issued Amount Outstanding Amount
Bid Price Bid YTM S&P
11/15/2026
300,000,000
300,000,000
95.997
3.6095 BBB+
11/5/2020
500,000,000
500,000,000
99.755
2.8140 BBB+
11/16/2027
300,000,000
300,000,000
98.657
3.6337 BBB+
11/16/2022
300,000,000
300,000,000
99.074
3.0257 BBB+
11/6/2019
300,000,000
300,000,000
99.866
3.0025 BBB+
8/1/2022
412,100,000
188,716,776 104.963
4.4991 A+
3/1/2027
100,000,000
100,000,000 123.026
3.9375 BBB+
8/1/2022
87,900,000
40,239,095 105.195
4.9088 A-
FINC 300
Integrated Core Finance
Spring 2019
Chapter 14 Homework Assignment
Calculating WACC for Southwest Airlines
You are to calculate Weighted-Average-Cost-of-Capital (WACC) for Southwest Airlines using the
attached data collected from the Bloomberg Terminal on April 21, 2019.
In the supplemental Excel file, note that the firm has eight long-term bond issues outstanding. The
spreadsheet contains the required data on book value, market prices and yields on these instruments.
Assume the firm faces a marginal tax rate of 21% (the current federal flat tax rate for corporations). Also,
assume that the long-term return on the stock market is 12% (as in Chapter 12), and that the return on
short-term T-bills (I month) represents the risk-free rate, near April 21 this rate is 2.45%.
(https://www.treasury.gov/resource-center/data-chart-center/interestrates/Pages/TextView.aspx?data=yield)
Southwest Airlines Firm Description Page, April 21, 2019
Estimate of Beta for Southwest Airlines Against the New York Stock Exchange Composite
Index for the last Two Years using Weekly Returns, April 21, 2019
This assignments is due on Thursday, May 2 at the beginning of class. You will bring a hard-copy of your
work to submit in-class. There is also a Drop Box on Canvas for you to post your work. You must submit
a version of the Excel spreadsheet with any work on the value and required returns on the long-term
bonds. You can make your final computation of WACC either on paper or in Excel. But, you must post a
version of this to Canvas.

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