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Twining-Hadley Incorporated

Twining-Hadley Incorporated

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Yale School of Management
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In February 2018, Jessica Austin, a recently promoted senior analyst in the Twining-Hadley Incorporated (THI) CFO’s office, was asked to calculate the company’s Weighted Average Cost of Capital (WACC) for the coming budgetary cycle. Austin was eager to prove herself in her new job and eagerly set about the task.

THI (a fictitious company modeled after real-life examples) was a large consumer goods and healthcare company, with a market cap in excess of $300 billion. With over 112,000 employees located in facilities across the globe, the company sold its products in nearly every country in the world. THI organized its businesses into three segments reflective of the markets it served: Consumer, Pharmaceutical, and Medical Devices.

At THI, the cost of capital represented an important element in making numerous strategic and operational decisions. The cost of capital played an important role in all investment decisions. The company expanded both organically through various research and development projects as well as by making acquisitions of companies in its markets. Senior management took the cost of capital into account before determining which projects to undertake.

The cost of capital also played a critical role in determining the company’s capital structure. THI’s investors had come to expect reliable returns. On occasion, the company also had engaged in stock buy-backs, most recently in 2015. In 2018, senior management was once again considering a buy-back scheme and would consult the cost of capital figure as part of that consideration.

Finally, the cost of capital played a role in executive compensation as the THI bonus scheme was tied to Economic Value Added (EVA). The bonus plan covered over 2,000 of THI’s top executive leadership, including Austin’s boss and the CEO.

In determining the appropriate cost of capital for the different decisions mentioned above, Austin also had to match the horizon of these decisions with the appropriate maturity of treasury securities she used as the base "risk-free" rate. As she looked over the documents she had gathered about the financial markets, the company’s operational results for 2017, and the company’s existing capital structure, Austin realized that the eyes of the company would be on her, as her calculations would have significant consequences for nearly everyone in the company.


Published Date: 11/11/2018

Suggested Citation: Jaan Elias, K Geert Rouwenhorst, Jacob Thomas, "Twining-Hadley Incorporated," Yale SOM Case 18-020, November 11, 2018

Keywords: Pharmaceuticals, Medical Devices, Weighted Average Cost of Capital (WACC), Investment, Compensation, Risk Free Rate