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Netflix Continues To Change The Face Of In Home Movies Around The Globe Case Solution
| Solution Id | Length | Case Author | Case Publisher |
|---|---|---|---|
| 1602 | 337 Words (3 Pages) | Philip N. parker | Insead |
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The cost of capital for Netflix is calculated by using the cost of debt and cost of equity. The cost of debt is calculated using the current interest expense of the company for September 2016. It is then divided by the value of long term debt.
Case Analysis for Netflix Continues To Change The Face Of In Home Movies Around The Globe
The cost of debt comes out to be 4.487%. The cost of equity calculation is done through capital asset pricing model. The risk-free rate used is the 12 months rate on US Treasury Bonds which is 2.4% (Bloomberg, 2016). As the Netflix is an entertainment oriented company.
Therefore, the average beta of the entertainment industry is used as an approximate estimate for Netflix. The beta is 1.21 for this sector (Stern NYU, 2016). The market risk premium used is 7.5% which Netflix requires from the market. This prudent rate is assumed but can be varied. The cost of equity comes out to be 8.57%. The value of debt and equity is reported in Table 1 to calculate the weights of debt and equity. The value of debt is the value of long term debt as at September 2016.
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