Managing finance

RUNNING HEAD: FINANCE
Managing finance

Finance 2
Part A and B
Please refer to excel file for calculations.
Part C
Weighted average cost of capital determines the firm’s capital structure which consists of debt
and equity component. The WACC is calculated by giving weights to each element and then
multiplying the same with the cost of debt and cost of equity respectively. However, there are
various reasons due to which the cost of capital of the firm can be different (Fernandes, 2014). In
case of AGL Energy Limited, the WACC increases from 4.64% to 5.39% during the past three
years that are 2015, 2016 and 2017. This is because of the high portion of equity taken by the
company as compare to its debt. The changes occur in the capital are the results of fluctuations in
beta factor of the entity which continues to rise over the period of past three years. This boosted
up its cost of equity. Along with this, the cost of debt of AGL also rises from 4.5% to 5.0%
because of the change in the amount of borrowings taken by the company over the past three
years. Apart from the beta and interest expense, other factors which contribute to the fluctuations
in capital are the market return and risk free rate. However, in this case both are been kept same
for all the years. Same is the case with Origin Energy, company’s WACC rises from 3.47% to
4.27% during the years. However, it has high portion of debt as compare to AGL and moreover,
its beta has been reduced during the past years.
Part D
Dividend policy deals with the guidelines that are to be followed by the company on the basis of
which, it decides the dividend amount to be paid to the shareholders. For some investors, the