A Capital Structure Sensitivity Analysis for Procter & Gamble (P&G)

Linjia Qiu

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

This project examines Procter & Gamble (P&G) by simulating how different capital structure choices affect the firm's weighted average cost of capital (WACC) and implied value. P&G is a large, well-known consumer staples company with steady demand, making it a useful case for testing how leverage changes financing costs. Using Bloomberg Terminal data, I estimate the cost of equity with a market-risk approach based on beta and a long-term risk-free rate. I estimate the cost of debt using a synthetic rating method that links interest coverage to a credit spread, and I incorporate the corporate tax rate to reflect the after-tax benefit of debt. With these inputs, I calculate a baseline WACC and evaluate a range of hypothetical debt–equity mixes to identify how financing costs change as leverage increases. The expected finding is a tradeoff: moderate debt may lower WACC because interest is tax-deductible, but higher leverage increases risk and borrowing costs, which can offset the benefit and reduce value. The results are presented and analyzed in this poster.