WACC and Dividend Policy of Qantas

FINANCE

Contents
Answer-1...............................................................................................................................................2
Answer-2...............................................................................................................................................3
Answer-3...............................................................................................................................................4
References.............................................................................................................................................7

Answer-1
WACC
Market capitalisation- $5908.696 million
Market value of debt is the summation of current portion of long-term debt and capital lease
and the long-term debts. Until 2018, the company has current portion of long-term debt was
nearly $315.191 million and long term debt and capital lease obligation of $3294.22 million.
Therefore, the total valuation of debt is $3609.413 million (Qantas, 2018).
Weight of equity= market capitalisation/ (value of debt+ market capitalisation)
=5908.4/ (5908.4+3609.4) = .62
Weight of debt= 3609.4/ (5908.6+3609.4) = .37
Interest expense= $172.413 million
Cost of debt= 172.413/3609.41= 4.77%
Cost of equity= risk free rate+ b*market premium
= 1.9600%+ 0.29*6 percent
= 3.7 percent
WACC (Weighted cost of capital) = value of equity/ (value of equity + book value of debt)*
cost of equity + book value of debt/ (market value of equity + book value of debt)*cost of
debt* (1-tax rate)
= .62*3.7 percent + 0.3792* 4.776 percent* (1-28.6)
= 3.59 percent
It is quite visible that if the organisation`s profitability is more than the organisation should
employ more debt. On the other hand, if the organisation’s profitability is less than it should