Credit: Shutterstock photoMicrosoft ( MSFT ) has announced the acquisition of LinkedIn (NASDAQ:LKND) for $26.2 billion. The company plans to acquire LinkedIn through the issuance of new debt. As Microsoft's debt liabilities increase by 60% by the issuance of more debt, debt as a percentage of overall capital will increase from 10% at the end of 2015 to 15%. As a result, the weight of debt and cost of debt in Weighted Average Cost of Capital ( WACC ) will increase. Since Microsoft's bonds are triple-A rated, its cost of debt is significantly lower than lower than the cost of equity. Accordingly, Microsoft's cost of capital will decline by 40 basis points. The WACC calculation, according to our forecasts and assumptions, is as follows:
Have more questions about Microsoft? See the links below:
- What's Microsoft's Revenue And Earnings Breakdown?
- By What Percentage Did Microsoft's Revenue And EBITDA Increase In The Last Five Years?
- How Has Microsoft's Revenue Composition Changed Over The Last 5 Years?
- By What Percentage Can Microsoft's Revenues And EBITDA Grow In The Next 3 Years?
Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Microsoft
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
