A Capital Structure Analysis for Lockheed Martin (LMT)

Huiyu Li

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

Abstract: This project analyzes Lockheed Martin (LMT) using core corporate finance ideas, especially valuing cash flows in present value terms and linking financing choices to the firm’s cost of capital. The objective is to estimate LMT’s weighted average cost of capital (WACC) and explain how changing the debt–equity mix could affect the company’s financing cost and overall value. Using recent market data from public sources (e.g., Yahoo Finance) and Bloomberg, along with basic financial statement inputs, I estimate the cost of equity with a market-risk approach based on beta, the risk-free rate, and a reasonable market risk premium. I estimate the cost of debt using bond yields (yield to maturity) and a simple credit-risk check based on the firm’s ability to cover interest payments. With these inputs, I calculate a baseline WACC and compare several reasonable “what-if” leverage scenarios, such as slightly higher debt and slightly lower debt than the current level. The expected insight is a clear tradeoff: moderate debt may reduce WACC because interest is tax-deductible, but too much debt can raise credit risk and financing costs enough to offset those tax benefits, which may reduce value rather than increase it.