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Finance Assignment

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Added on  2019-09-26

Finance Assignment

   Added on 2019-09-26

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Finance AssignmentWeighted-average cost of capitalThis assignment involves the estimation of the weighted-average cost of capital of a listed companyusing publicly available data. You can pick any company you like. However, this project willrequire several pieces of data, which will be easier to track down for larger well-known companies.You probably also want to select a company with a single business unit – otherwise you reallyshould be estimating a different WACC for each different business unit and then aggregating thoseestimates at the end. In summary, you probably want a well-known listed firm that has a single lineof business. You should try to avoid banking stocks as leverage has a somewhat differentinterpretation forthem.You’ll then need estimates for each of the parameters in the WACC equation:WACC r1 ErDe 11Vd1.Vwhere you’ll use the CAPM to estimate the required return on equity:Some hints about how to estimate the individual parameters:1.Capital structure (i.e., the relative proportions of debt and equity capital) is usually computedby:a.setting to the market value of equity or market capitalisation (the number of sharesmultiplied by the current share price), which is easily available on many finance websites;andb.setting to the book value of interest bearing liabilities (the sum of short-term andlong-term debt), which is available in the company’s most recent financialstatementsin its annual report. Ideally, we would want the market value of debt, but this will beunavailable because it includes bank loans etc. Also, market value and book value arelikely to be reasonablyclose for debt, but not for equity.Some finance web sites also provide estimates of gearing, but be careful here as they areusually book value estimates (i.e., they may be based on the book value, rather than themarket value, of equity).2.The risk-free rate is usually set to the current yield on long-term government bonds. The RBAprovides this sort of dataat:http://www.rba.gov.au/statistics/tables/xls/f02d.xls.3.The equity beta is usually estimated using regression analysis. I don’t expect you to obtain rawdataandruntheseregressionsyourselves–equitybetaestimatesarereadilyavailableon
Finance Assignment_2

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