Calculating Weighted Average Cost of Capital and Gearing Ratios for AGL Energy Ltd

CORPORATE FINANCE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
EXECUTIVE SUMMARY.............................................................................................................1
REFERENCES................................................................................................................................2

INTRODUTION
Corporate finance is the division of finance dealing with the capital structuring, funding
sources and the investments decisions. Focus of corporate finance is primarily over maximising
the wealth of the shareholders value by short term and long term financial planning and the
implementation of effective strategies. Corporate finance is charged with the governance and
overseeing financial activities as well as capital investment decisions. These decisions include
whether pursuing with debt or equity or both. Report is based on AGL Energy ltd which is an
Australian retailing and power generation company. report will provide the computation of
weighted average cost of capital of company. Report will provide the analysis and interpretation
of the outcomes generated. Gearing ratios are also calculated of the company and evaluation of
the capital structure.
TASK
AGL Energy ltd
AGL Energy ltd is Australian public company which is involved in retailing and
generation of the gas and electricity for commercial and residential use. Company generate
energy from the power stations which uses thermal power, wind power, natural gas, solar energy,
gas storage as well as coal seam gas sources. Company was established as AGL Energy in year
2006 having headquarters in Sydney, Australia. Company has net income of $905 million in year
2019 with total revenues of $13015 million and operating income of 1436 million. AGL is
having diversified portfolio of peaking, base and intermediate generation plants that are spread
across the traditional thermal generations and renewable resources wind and hydro. Company is
operating since years and is succeeding with considerable growth rate. It is a well established
with efficient financial performance and strong financial position.
1. Calculating Weighted Average cost of Capital
Weighted Average cost of Capital.
WACC ke*W + Kd*W
(7.41%*0.69) + (5%*0.31)
WACC 5.55%
Cost of Equity (Ke)
CAPM
Rm 7.38%
1