Sanofi: Dosing the Cost of Capital

Barbara S. Pécherot

Product #:A06250014

Supplier:Thunderbird

Discipline:Finance

Details:Case (PDF) • 7 pages • 2025-10-31

Subjects:

Financial risk

Industries:

Healthcare sector

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$9.71

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At a pension fund that has a large position in Sanofi, a leading global pharmaceutical company, intern Rafael Perez has been asked to help equity analyst Maria Alba, CFA, estimate the company’s cost of capital. Following changes in corporate strategy and a deterioration in operating profitability, Maria is concerned that Sanofi’s business risk and financial risk will increase, driving the company’s cost of capital up and its valuation down. Rafael must quickly choose the right models and select the right data to estimate Sanofi’s weighted average cost of capital (WACC) and assess the potential impact of increases in the company’s credit spread on its debt and systematic risk on its stock.

Learning Objectives

Introduce and/or revisits financial concepts, particularly those related to risk measures Apply the dividend discount model (DDM) and the capital asset pricing model (CAPM) to estimate Sanofi’s cost of equity, identifying the drivers of each model, understanding why the estimates from the two models are different, and choosing the most appropriate model for the calculation of Sanofi’s WACC Apply the spread to Treasury (T-spread) method and the spread to curve (I-curve) method to estimate Sanofi’s pre-tax cost of debt, identifying the drivers of each method, understanding why the estimates from the two methods are different, and choosing the most appropriate method for the calculation of Sanofi’s WACC Analyze Sanofi’s capital structure and assess how it could change Estimate Sanofi’s WACC and perform sensitivity analyses, particularly to changes in the company’s systematic risk and credit spread