Capital Structure and WACC Analysis of Fortescue Metals Group Limited

Running head: FINANCIAL MANAGEMENT
Financial Management
Student Name
University Name

2FINANCIAL MANAGEMENT
Table of Contents
Introduction......................................................................................................................................3
Question 1: Determination of WACC.............................................................................................3
Question 2: Nature of firm’s capital structure.................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

3FINANCIAL MANAGEMENT
Introduction
The below report highlights the capital structure of the firm Fortescue Metals Group Limited. It
is one of the leading iron ore production and exploration company which operates in the Pilbara
region of northern Western Australia. Based on the last financial years, the capital structure of
the firm will be determined and on that basis, several recommendations will be given to the firm.
Question 1: Determination of WACC
The cost of capital comprises of overall cost of equity and debts fund of a particular
organization. It is also considered as the required rate of return of the given organizations.
Weighted Average Cost of Capital helps in determining the capital structure of the firm (Robb
and Robinson 2014)
It can be inferred that all sources of capital, including debt, equity, bonds are included in the
calculation of Weighted Average Cost of Capital. The WACC of an organization increases as the
rate of return of equity of an organization increases (Zeitun and Tian 2014). The following
tables will reflect the calculation of WACC of the firm Fortescue Metals Group Limited.
Cost of Equity Amount of Equity
Riskfree rate 2.39% Share
s
3111
Bet
a
0.90 Price 5.22
Market return 10% Value 16239.4
2
Cost of Equity 9.38%
Cost of Debt Amount of Debt
Rat
e
2.75% Book value 12257