How should Dale and Lee estimate the cost of long-term debt? Should short-term debt be considered in calculating cost of capital? EXHIBIT 2: WALMART INC., CONSOLIDATED BALANCE SHEETAS OF JANUARY 31 ($ MILLIONS)20192018ASSETSCurrent Assets:Cash and Equivalents7,7226,756Accounts Receivable6,2835,614InventoryPrepaid ExpensesTotal Current Assets44,26943,7833,6233,51161,89759,664Net Property, Plant & Equipment111,395 114,818Goodwill31,18118,242Other Long-Term Assets14,822219.29511,798Total Assets204.522LIABILITIESCurrent Liabilities:Accounts Payable47,06046,09222,1595,2252,605Accrued Liabilities22,122Short-Term BorrowingsCurrent Portion of Long-Term Debt & Capital Leases5,2574,405Other Current Liabilities428645Total Current Liabilities77,47778,521Long-Term Debt & Capital LeasesDeferred Income Taxes and Other50,20311,981139,661 123,70036,8258,354Total LiabilitiesEQUITYCommon Stock and Paid-In CapitalRetained EarningsOther Comprehensive Income (Loss)Total Common EquityNon-Controlling InterestTotal Equity3,2532,94380,78585,107(11,542) (10.181)72,49677,8697,1382,9537963480822Total Liabilities & Equity219.295204.522 Dale: I think the reason we really care about the cost of capital is because we want to know what hurdlerate Walmart should use for its annual investments in capital projects, which represent billions ofdollars each year.But I'm not sure if it should make any difference to senior management whether the company isinvesting in more U.S. stores, remodelling, or investing internationally. Shouldn't they want thesame return?Lee:Dale: Interesting question. So, where should we start? I was thinking we might look at the balancesheet particularly the liabilities and equity section. Shouldn’t that show how Walmart financedits assets, which cost over $200 billion?Lee: Yes, and I think we should try to associate a cost with each of the items. Then we need to figureout how to average them in order to estimate the cost of capital.Dale: I think we need some kind of interest rate, or borrowing rate, for each of the debt components. Ormaybe we can just take a look at how much interest the company paid last year relative to itsdebt? That might be easier.Lee: There sure are a lot of interest rates. I noticed on the U.S. Department of Treasury website thatthree-month treasury bills were yielding 2.45 per cent, while one-, five-, and 10-year treasurybonds were yielding 2.54 per cent, 2.47 per cent, and 2.65 per cent, respectively.“ I pulledtogether those and some other rates to graph today's yield curve compared with last year's (seeExhibit 1). I wonder if we can somehow use this information.Dale: I found some other interest rates as well. The prime rate is 5.50 per cent, and three-monthcommercial paper was averaging 2.73 per cent. I read in the annual report that Walmart hasissued commercial paper in the past-as part of its short-term borrowings so perhaps thatinformation might be relevant. I also read that Walmart uses short-term borrowing to providefunds for operations, make capital expenditures, and cover other cash requirements.Lee: Yes, and I read in the same report that Walmart has issued lots of bonds. Other reports showedthe same pattern. For example, I noticed that on February 15, 2000, Walmart issued $1 billion inbonds with a coupon rate of 7.55 per cent. The bonds mature on February 15, 2030, around 11years from now. I also noticed from an online source that these bonds were selling for $136.38and yielding 3.53 per cent. I think I need to re-read the background material we were providedwith because I'm confused about the difference between coupon rates and yields. Which is morerelevant for us?Dale: What about preferred shares? I don't think Walmart has any currently, but I read that years ago itissued some kind of securities that were like preferred shares. I don't think the company has anyplans to issue new preferred shares in the next little while, but maybe we should be prepared tofigure out how it would affect the cost of capital if it did.

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Above all else, because of the way that we should know what the cost of capital is and…