APN Outdoor Group Capital Structure Analysis

This assignment examines the capital structure of APN Outdoor Group, focusing on its blend of debt and equity financing. It explores how changes in their capital framework affect the weighted average cost of capital (WACC) and ultimately influence the company's ability to fund new projects and generate returns for shareholders. The analysis also considers factors like revenue growth, profitability, and dividend payouts as indicators of APN's financial health.

Running head: ACCOUNTING AND FINANCE
Accounting and Finance
Name of the Student:
Name of the University:
Author’s Note:

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ACCOUNTING AND FINANCE
Table of Contents
Answer to Part A........................................................................................................................2
Requirement 1........................................................................................................................2
Requirement 2:.......................................................................................................................4
Requirement 3........................................................................................................................4
Answer to Part B........................................................................................................................5
Introduction............................................................................................................................5
Evaluation of the Capital Structure of APN...........................................................................5
Computation of After-Tax WACC.........................................................................................6
APN Outdoor and the performance of their competitors.......................................................6
Capital Structure of APN Outdoor Group..............................................................................7
Conclusion..............................................................................................................................7
Reference List............................................................................................................................8

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Answer to Part A
Requirement 1
Particulars 0 1 2 3 4 5 6 7 8
Initial Investment ($1,650,000)
Annual Cash Flow:
Incremental Revene $1,445,000 $1,589,500 $1,748,450 $1,923,295 $2,115,625 $2,327,187 $2,559,906 $2,815,896
Staff Cost ($900,000) ($954,000) ($1,011,240) ($1,071,914) ($1,136,229) ($1,204,403) ($1,276,667) ($1,353,267)
Material Costs ($210,000) ($222,600) ($235,956) ($250,113) ($265,120) ($281,027) ($297,889) ($315,762)
Marketing Costs ($46,000) ($48,760) ($51,686) ($54,787) ($58,074) ($61,558) ($65,252) ($69,167)
Other Costs ($25,000) ($26,500) ($28,090) ($29,775) ($31,562) ($33,456) ($35,463) ($37,591)
Depreciation of Lab ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250)
Net Profit before Tax $57,750 $131,390 $215,228 $310,455 $418,389 $540,493 $678,385 $833,859
Less: Tax on Profit ($17,325) ($39,417) ($64,569) ($93,137) ($125,517) ($162,148) ($203,515) ($250,158)
Net Profit after Tax $40,425 $91,973 $150,660 $217,319 $292,872 $378,345 $474,869 $583,701
Add: Depreciation $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250
Annual After-Tax Cash Flow $246,675 $298,223 $356,910 $423,569 $499,122 $584,595 $681,119 $789,951
Salvage Value $100,000
Net Annual Cash Flow ($1,650,000) $246,675 $298,223 $356,910 $423,569 $499,122 $584,595 $681,119 $889,951
Cumulative Cash Flow ($1,650,000) ($1,403,325) ($1,105,102) ($748,192) ($324,624) $174,499 $759,094 $1,440,213 $2,330,164
Payback Period
Required Rate of Return 16% 16% 16% 16% 16% 16% 16% 16% 16%
Discounted Cash Flow ($1,650,000) $212,651 $221,628 $228,657 $233,933 $237,639 $239,942 $241,000 $271,458
Cumulative Discounted Cash Flow ($1,650,000) ($1,437,349) ($1,215,721) ($987,064) ($753,131) ($515,492) ($275,550) ($34,549) $236,908
Discounted Payback period
Net Present Value
Profitability Index
4.65
7.13
$236,908
114.36%
Period
Capital Budgeting for Base-Case:

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Particulars 0 1 2 3 4 5 6 7 8
Initial Investment ($1,650,000)
Annual Cash Flow:
Incremental Revene $1,445,000 $1,531,700 $1,623,602 $1,721,018 $1,824,279 $1,933,736 $2,049,760 $2,172,746
Staff Cost ($900,000) ($990,000) ($1,089,000) ($1,197,900) ($1,317,690) ($1,449,459) ($1,594,405) ($1,753,845)
Material Costs ($210,000) ($231,000) ($254,100) ($279,510) ($307,461) ($338,207) ($372,028) ($409,231)
Marketing Costs ($46,000) ($50,600) ($55,660) ($61,226) ($67,349) ($74,083) ($81,492) ($89,641)
Other Costs ($25,000) ($27,500) ($30,250) ($33,275) ($36,603) ($40,263) ($44,289) ($48,718)
Depreciation of Lab ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250)
Net Profit before Tax $57,750 $26,350 ($11,658) ($57,143) ($111,073) ($174,526) ($248,703) ($334,939)
Less: Tax on Profit ($17,325) ($7,905) $3,497 $17,143 $33,322 $52,358 $74,611 $100,482
Net Profit after Tax $40,425 $18,445 ($8,161) ($40,000) ($77,751) ($122,168) ($174,092) ($234,457)
Add: Depreciation $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250
Annual After-Tax Cash Flow $246,675 $224,695 $198,089 $166,250 $128,499 $84,082 $32,158 ($28,207)
Salvage Value $100,000
Net Annual Cash Flow ($1,650,000) $246,675 $224,695 $198,089 $166,250 $128,499 $84,082 $32,158 $71,793
Cumulative Cash Flow ($1,650,000) ($1,403,325) ($1,178,630) ($980,541) ($814,291) ($685,792) ($601,710) ($569,552) ($497,760)
Payback Period
Required Rate of Return 16% 16% 16% 16% 16% 16% 16% 16% 16%
Discounted Cash Flow ($1,650,000) $212,651 $166,985 $126,907 $91,818 $61,180 $34,511 $11,378 $21,899
Cumulative Discounted Cash Flow ($1,650,000) ($1,437,349) ($1,270,364) ($1,143,457) ($1,051,638) ($990,458) ($955,948) ($944,569) ($922,671)
Discounted Payback period
Net Present Value
Profitability Index
Capital Budgeting for Worst-Case:
Period
10.34
50.13
($922,671)
44.08%

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ACCOUNTING AND FINANCE
Particulars 0 1 2 3 4 5 6 7 8
Initial Investment ($1,650,000)
Annual Cash Flow:
Incremental Revene $1,445,000 $1,661,750 $1,911,013 $2,197,664 $2,527,314 $2,906,411 $3,342,373 $3,843,729
Staff Cost ($900,000) ($927,000) ($954,810) ($983,454) ($1,012,958) ($1,043,347) ($1,074,647) ($1,106,886)
Material Costs ($210,000) ($216,300) ($222,789) ($229,473) ($236,357) ($243,448) ($250,751) ($258,274)
Marketing Costs ($46,000) ($47,380) ($48,801) ($50,265) ($51,773) ($53,327) ($54,926) ($56,574)
Other Costs ($25,000) ($25,750) ($26,523) ($27,318) ($28,138) ($28,982) ($29,851) ($30,747)
Depreciation of Lab ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250) ($206,250)
Net Profit before Tax $57,750 $239,070 $451,840 $700,904 $991,838 $1,331,058 $1,725,947 $2,184,998
Less: Tax on Profit ($17,325) ($71,721) ($135,552) ($210,271) ($297,551) ($399,318) ($517,784) ($655,499)
Net Profit after Tax $40,425 $167,349 $316,288 $490,633 $694,287 $931,741 $1,208,163 $1,529,498
Add: Depreciation $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250 $206,250
Annual After-Tax Cash Flow $246,675 $373,599 $522,538 $696,883 $900,537 $1,137,991 $1,414,413 $1,735,748
Salvage Value $100,000
Net Annual Cash Flow ($1,650,000) $246,675 $373,599 $522,538 $696,883 $900,537 $1,137,991 $1,414,413 $1,835,748
Cumulative Cash Flow ($1,650,000) ($1,403,325) ($1,029,726) ($507,188) $189,694 $1,090,231 $2,228,222 $3,642,635 $5,478,383
Payback Period
Required Rate of Return 16% 16% 16% 16% 16% 16% 16% 16% 16%
Discounted Cash Flow ($1,650,000) $212,651 $277,645 $334,768 $384,882 $428,757 $467,080 $500,461 $559,950
Cumulative Discounted Cash Flow ($1,650,000) ($1,437,349) ($1,159,704) ($824,936) ($440,054) ($11,297) $455,782 $956,244 $1,516,194
Discounted Payback period
Net Present Value
Profitability Index
Capital Budgeting for Best-Case:
Period
3.79
5.29
$1,516,194
191.89%
Requirement 2:
The methods and the techniques for the purpose of capital budgeting is inclusive of
numerous processes for the description and the projection of the cases. With the help of the
tables provided in the above requirement, the Net Present Value (NPV) tool has been
employed for predicting the future cash outflow of the project under consideration (Beekes et
al., 2015). The other techniques that are available for use are the aggregate rate of return and
payback period in order to estimate the challenges that are interlinked with the project.
Requirement 3
After the examination of the tables constructed above, it can be depicted that the NPV
of the project has been positive and the profitability index of the project under consideration
accounts to 191.89%. The observation of a positive NPV explains that the project is possible
and the firm should undertake the outlay operations of the business. The cost benefit ratio of

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the associated plan is constructed with the assistance of the profitability index, which has
been 191.89%, which proposes that the NPV of the future cash flow is more than the primary
outlay value that has been paid by the company. The other data in accordance to the approval
and refusal of the project can be constructed by taking assistance of the incorporation of the
other techniques of capital budgeting that includes the payback period and the aggregate rate
of return (Gitman et al., 2015).
Answer to Part B
Introduction
The financial declaration has been computed so that knowledge about APN Outdoor
Group’s structure of capital can be known. The company has been known to be an ASX listed
organization. The declaration has depicted that the calculation of the WACC and the
examination of the critical financial ratios of the company.
Evaluation of the Capital Structure of APN
The WACC of APN has been 8.32% and an additional amount of $181.8 of equity has
been established by the firm in 2016 in order to establish an innovative capital framework.
The firm has the intention of lowering the cost of capital with the assistance of the
preservation of the ideal capital framework. By taking help of the examination of the annual
financial report, it is cited that during the accounting year of 2016, the debt capital proportion
in the structure has fallen. APN’s cost of capital can fall further by increasing the debt
proportion value in their capital structure. The factor has been the equity capital that has been
issued and he interest bearing liabilities has fallen in the present year (McKay, and Haque
2016). Hence, for conclusion it is depicted that value of equity has stayed at 38.1 in the
current year and the debt capital overall value has accounted to 27.61.

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Computation of After-Tax WACC
Particulars Amount Weightage Return Rate
Weighted
Return
Total Equity Capital $836,465 83.83% 8.38% 7.03%
Total Debt Capital $161,309 16.17% 11.42% 1.85%
Tax Rate 30%
After-Tax Weighted Average Cost
of Capital 8.32%
Computation of After-Tax Weighted Avergae Cost of Capital:
APN’s net operating cash has reduced for the last three years and the per share
earnings of the company has been lower by 19% than the target of the present strategies and
the amount has accounted to 0.29 in the current year. The earnings per share have reduced to
31.4 in the year 2016 and this value has been lower than the previous year value of 44.4. The
price earnings ratio has been found to be 16.92 in 2017.
The assessment of the liquidity scenario of the company has been understood by
looking at the values of ratios of cash, quick and current (Ali, 2016). The cash ratio has been
0.38; current ratio has been 1.90 while the quick ratio has been 1.89. On the other hand, the
interest coverage ratio has accounted to 25.96 and the debt to asset ratio valuing at 0.23.
APN Outdoor and the performance of their competitors
Ooh Media has been one of the key competitors of APN. The capital framework of
the firm is mingling of the equity and loans. The capital equity amount rises with the
company loans and therefore it can be defined that the capital structure of APN is a mixture
of the debt and capital. There has been a transition in the capital framework of APN for the
past three years and they have been based on the equity financing loan (Unda, 2015).
Therefore, it can be said that the capital framework of the organizations is a mixture of

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financing their assets (Sivathaasan, 2016). APN has obtained an effective cash flow that aids
in funding the projects and establishes favourable earnings to the shareholders.
Capital Structure of APN Outdoor Group
APN’s capital structure is a mixture of equity and debt with the idea of funding the
asset. The cost of capital is the rate of return that is predicted by the company on the revenue
over the capital as an alternate amount of investment with the existence of risk. (Gallagher et
al., 2015) The transitions on the capital framework have a straight effect on the WACC.
Thus, to increase the market value, it is vital for the firm to reduce their cost of capital. The
cost of capital of a company can be declined with the assistance of redeveloping their capital
framework and it is to be scrutinised that the cost of capital does not exceed the anticipated
return rate. The cost of capital being lower would make funding in the new projects more
reasonable (Gippel et al., 2015).
Conclusion
After the evaluation of the above case study, it can be depicted that the capital
framework of APN comprises of debts and equity, they have been providing feasible returns
to the shareholders and hence provides increased dividends to their stakeholders. The revenue
and the returns before interest and tax of the firm have undergone an upward movement that
has help in establishing feasible returns to the stakeholders.

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Reference List
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of disclosures in Australia: a re‐examination. Accounting & Finance, 55(4), 931-963.
Gallagher, D. R., Ignatieva, K., & McCulloch, J. (2015). Industry concentration, excess
returns and innovation in Australia. Accounting & Finance, 55(2), 443-466.
Gippel, J., Smith, T., & Zhu, Y. (2015). Endogeneity in Accounting and Finance Research:
Natural Experiments as a State‐of‐the‐Art Solution. Abacus, 51(2), 143-168.
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson
Higher Education AU.
McKay, W., & Haque, T. (2016). A study of industry cost of equity in Australia using the
Fama and French 5 Factor model and the Capital Asset Pricing Model (CAPM): A
pitch. Journal of Accounting and Management Information Systems, 15(3), 618-623.
Sivathaasan, N. (2016). Corporate governance and leverage in Australia: A pitch. Journal of
Accounting and Management Information Systems, 15(4), 819-825.
Unda, L. A. (2015). Board of directors characteristics and credit union financial performance:
a pitch. Accounting & Finance, 55(2), 353-360.