(Doc) Corporate Finance Assignment

Running Head: Corporate Finance 1
Project Report: Corporate Finance

Corporate Finance 2
Executive summary
This report paper has been analyzed and prepared to investigate the capital structure
ratio and gearing ratio of Wesfarmers. In this learning, diverse techniques have been used to
estimate the cost of equity (Ke), cost of debt (Kd) and cost of capital (K) of Wesfarmers.
Further, gearing ratios of company have also been measured to investigate the presentation of
business, through this report paper, it could be concluded to the company to enhance the
funds from debt to manage the cost of the company.

Corporate Finance 3
Contents
Introduction.......................................................................................................................4
Wesfarmers.......................................................................................................................4
Calculation of WACC.......................................................................................................4
Return on equity...........................................................................................................4
Dividend discount model..............................................................................................4
CAPM Model................................................................................................................5
Return on debt...............................................................................................................5
Beta Coefficients..........................................................................................................5
Risk free rate.................................................................................................................5
G (Growth rate).............................................................................................................6
WACC..........................................................................................................................6
Calculation of gearing ratios.............................................................................................6
Findings............................................................................................................................7
Recommendation..............................................................................................................7
References.........................................................................................................................8
Appendix...........................................................................................................................9

Corporate Finance 4
Introduction:
Investors invest into the financial securities and in the market to enhance the worth of
their invested money. So, it becomes necessary for the investors to look over the up and down
in the market, analysis of market, security analysis etc before funding in that security. This
would help the company to save themselves from any sudden risk. Various tools could be
used by the investors and the analysts to find the best security in the market such as gearing
ratios, WACC, cost of equity and debt, market growth, market return, risk free rate etc. which
helps the investors to make a better decision by considering the performance and profitability
of that security (Hillier, Grinblatt and Titman, 2011).
Wesfarmers:
For this report, Wesfarmers limited has been taken into consideration. This company
has been registered into the Australian stock exchange. Wesfarmers limited is one of the
largest companies in the Australian retail industry. According to annual report of the
company, revenue of the company has been enhanced to $ 56.93 billion. Currently, this
company has been recognized as biggest empowerment company. This company offers its
product into the supermarket of Australia and it is also operating its business in other
countries as well.
Calculation of WACC:
For analyzing the value of the company and the security of the company, WACC has
been calculated. For calculating the WACC, it is required for the investor to calculate various
other factors as well such as cost of equity and debt, market growth, market return, risk free
rate etc. the analysis and calculation of all of the above are as follows:
Return on equity:
Return on equity is calculated to investigate the value of equity of the company. This
analysis depict about the entire cost which occurred in the company, if company enhances the
funds from the equity. In this calculation, per share unit cost has been analyzed. Dividend
discount model and CAPM model has been investigated for this report.
Dividend discount model: