Corporate Finance: Analysis of Bond, Share Prices, and Project NPV

This assignment delves into key aspects of corporate finance, offering a detailed analysis of bond valuation, share price determination, and project Net Present Value (NPV) calculations. The analysis begins with the calculation of a bond price, considering factors such as face value, coupon rate, yield rate, and the number of coupon payments. It then compares the calculated bond price to the par value, explaining the reasons behind any discrepancies, such as the impact of changing yield rates. The assignment further extends to the valuation of Shell's current share price in euros, using data like the EUR to USD exchange rate, market return, risk-free rate, annual dividend, and growth rate to determine the cost of capital. The assignment also includes a detailed Free Cash Flow (FCF) analysis for a gas project, projecting incremental revenue, costs, depreciation, and taxes over a 20-year period to arrive at the FCF and cumulative cash flow. Finally, the project's NPV is calculated under different Weighted Average Cost of Capital (WACC) scenarios (5.94% and 8%), providing insights into the project's financial viability. The analysis concludes with a discussion of the project's profitability based on the NPV results, offering recommendations for investment decisions. The student references several academic sources to support the financial analysis and conclusions.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

CORPORATE FINANCE
1
Table of Contents
2d.i) Calculating bond price if today is 6/12/2018:....................................................................2
2d.ii) Comparing bond price with figure above and stating why the bond is selling at par:.....2
2e.) Depicting current share price of Shell in euros:..................................................................3
3a) Depicting Free cash flow of the Shell’s gas project:...........................................................4
3b.a) Depicting NPV of the project when WACC is at 5.94%:.................................................6
3b.b) Depicting NPV of the project when WACC is at 8%:......................................................8
Reference and Bibliography:....................................................................................................10

CORPORATE FINANCE
2
2d.i) Calculating bond price if today is 6/12/2018:
Particulars Value
Face Value $ 100
Coupon Rate p.a. 2.25%
Half Year Coupon Rate 1.13%
Coupon Payment 1.13
Yield Rate 2.62%
Half Yearly Yield Rate 1.31%
Total Period 6
No. of Coupon Payments 12
Market Price of Bonds $ 97.96
2d.ii) Comparing bond price with figure above and stating why the bond is selling at
par:
The overall evaluation mainly indicates that bond value is mainly less than par for
Royal Dutch Shell, as it is valued at $97.96. This relevant decline in valuation is mainly due
to the rising yield rate incurred for the bond. The difference in bond coupon payment rate and
yield rate is mainly declining value of the bond to $97.96, which is less than the par value of
$100. Therefore, it could be understood that the reduced coupon payment in comparison with
yield rate could directly decline value of bond in the market. Ballotta and Kyriakou (2015)
mentioned that bond value mainly increases when interest rate declines, as investors are able
to generate higher return from investment. However, any increment in the interest rate could
directly reduce value of the bond, as investor will not be able to generate high returns from
investment.

CORPORATE FINANCE
3
2e.) Depicting current share price of Shell in euros:
Particulars Value
Current share price in Euro € 28.93
EUR to USD $ 1.22
Market return 9.00%
Risk free rate 1.25%
Annual dividend in USD $ 1.41
Annual dividend in Euro € 1.15
Growth rate 5.00%
Cost of capital 7.75%
Current Share price in Euro (1.15*(1+5%))/(7.75%-5%)
Current Share price in Euro € 44.06
From the evaluation of above table, current share price of Shell is mainly identified,
which could in turn allow investors in making adequate decisions. The evaluation also states
that current the theoretical evaluation of Shell share price under divided discount model is
mainly at € 44.06. However, the actual share price of the organisation is mainly at € 28.93
and theoretical value is mainly at € 44.06, which indicates that the investor to buy share of
the organisation to generate higher revenue from investment. The difference between actual
and theatrical price could allow the investor in increasing their profitability in anticipation of
share price rise in future. Lazzati and Menichini (2015) mentioned that investors with the
help of dividend discount model are mainly able to detect investment opportunity and raise
their profit level.

CORPORATE FINANCE
4
3a) Depicting Free cash flow of the Shell’s gas project:
Year Increme
ntal
revenue
Increme
ntal
costs
project
Depreci
ation
Free Cash
Flow
Tax Free cash
flow after
tax
Cumulativ
e cash
flow
0 $
(27,000,00
0,000)
$
(27,000,00
0,000)
$
(27,000,00
0,000)
1 $
3,633,30
0,000
$
1,089,99
0,000
$
889,200,
000
$
1,654,110,
000
$
496,233,
000
$
2,047,077,
000
$
(24,952,92
3,000)
2 $
3,705,96
6,000
$
1,089,99
0,000
$
889,200,
000
$
1,726,776,
000
$
518,032,
800
$
2,097,943,
200
$
(22,854,97
9,800)
3 $
3,780,08
5,320
$
1,057,29
0,300
$
889,200,
000
$
1,833,595,
020
$
550,078,
506
$
2,172,716,
514
$
(20,682,26
3,286)
4 $
3,855,68
7,026
$
1,025,57
1,591
$
889,200,
000
$
1,940,915,
435
$
582,274,
631
$
2,247,840,
805
$
(18,434,42
2,481)
5 $
3,932,80
0,767
$
994,804,
443
$
889,200,
000
$
2,048,796,
324
$
614,638,
897
$
2,323,357,
427
$
(16,111,06
5,055)
6 $
4,011,45
$
964,960,
$
889,200,
$
2,157,296,
$
647,188,
$
2,399,307,
$
(13,711,75

CORPORATE FINANCE
5
6,782 310 000 472 942 531 7,524)
7 $
4,091,68
5,918
$
936,011,
501
$
889,200,
000
$
2,266,474,
417
$
679,942,
325
$
2,475,732,
092
$
(11,236,02
5,432)
8 $
4,173,51
9,636
$
907,931,
156
$
889,200,
000
$
2,376,388,
481
$
712,916,
544
$
2,552,671,
936
$
(8,683,353,
496)
9 $
4,256,99
0,029
$
880,693,
221
$
889,200,
000
$
2,487,096,
808
$
746,129,
042
$
2,630,167,
766
$
(6,053,185,
730)
10 $
4,342,12
9,830
$
854,272,
424
$
889,200,
000
$
2,598,657,
405
$
779,597,
222
$
2,708,260,
184
$
(3,344,925,
546)
11 $
4,428,97
2,426
$
828,644,
252
$
889,200,
000
$
2,711,128,
175
$
813,338,
452
$
2,786,989,
722
$
(557,935,8
24)
12 $
4,517,55
1,875
$
803,784,
924
$
889,200,
000
$
2,824,566,
951
$
847,370,
085
$
2,866,396,
865
$
2,308,461,
041
13 $
4,607,90
2,912
$
779,671,
376
$
889,200,
000
$
2,939,031,
536
$
881,709,
461
$
2,946,522,
075
$
5,254,983,
116
14 $
4,700,06
0,970
$
756,281,
235
$
889,200,
000
$
3,054,579,
735
$
916,373,
921
$
3,027,405,
815
$
8,282,388,
931

CORPORATE FINANCE
6
15 $
4,794,06
2,190
$
733,592,
798
$
889,200,
000
$
3,171,269,
392
$
951,380,
818
$
3,109,088,
574
$
11,391,477
,505
16 $
4,889,94
3,434
$
711,585,
014
$
889,200,
000
$
3,289,158,
420
$
986,747,
526
$
3,191,610,
894
$
14,583,088
,399
17 $
4,987,74
2,302
$
690,237,
464
$
889,200,
000
$
3,408,304,
839
$
1,022,49
1,452
$
3,275,013,
387
$
17,858,101
,786
18 $
5,087,49
7,148
$
669,530,
340
$
889,200,
000
$
3,528,766,
809
$
1,058,63
0,043
$
3,359,336,
766
$
21,217,438
,552
19 $
5,189,24
7,091
$
649,444,
430
$
889,200,
000
$
3,650,602,
662
$
1,095,18
0,799
$
3,444,621,
863
$
24,662,060
,415
20 $
5,293,03
2,033
$
629,961,
097
$
889,200,
000
$
3,773,870,
936
$
1,132,16
1,281
$
3,530,909,
656
$
28,192,970
,071
3b.a) Depicting NPV of the project when WACC is at 5.94%:
Year Free cash flow after tax
0 $ (27,000,000,000)
1 $ 2,047,077,000
2 $ 2,097,943,200

CORPORATE FINANCE
7
3 $ 2,172,716,514
4 $ 2,247,840,805
5 $ 2,323,357,427
6 $ 2,399,307,531
7 $ 2,475,732,092
8 $ 2,552,671,936
9 $ 2,630,167,766
10 $ 2,708,260,184
11 $ 2,786,989,722
12 $ 2,866,396,865
13 $ 2,946,522,075
14 $ 3,027,405,815
15 $ 3,109,088,574
16 $ 3,191,610,894
17 $ 3,275,013,387
18 $ 3,359,336,766
19 $ 3,444,621,863
20 $ 3,530,909,656
Cost of capital 5.94%
NPV of the project $ 3,109,533,658.79
The NPV of the project at the cost of capital 5.94% is mainly at $3,109,533,658.79,
which is relevantly positive and indicate financial viability of the proposed gas project.
Hence, it could be assumed that under the WACC of 5.94% the organisation could increase
their probability in future.