Financial Assignment: DMGT's Weighted Average Cost of Capital

This financial assignment provides a comprehensive analysis of Daily Mail and General Trust plc (DMGT), focusing on the calculation of its Weighted Average Cost of Capital (WACC). The assignment begins by calculating the cost of equity using two different methods, including the risk-free rate and equity risk premium, and the dividend growth model. It then proceeds to calculate the cost of debt, also using two methods, considering both the bond credit rating and the annual interest payments. The capital structure of DMGT is then determined, including the market values of equity and debt, along with their respective percentages. Finally, the assignment derives the most appropriate estimate of DMGT’s WACC at 4.26%, providing justification for the chosen methods. The analysis includes a discussion of the methodologies used, the importance of accurate cost of debt and equity calculations, and references to relevant financial literature. The student emphasizes the use of method 2 for both cost of debt and equity calculations to derive a more accurate WACC and supports their findings with references to the annual report and financial studies.

Running head: FINANCIAL ASSIGNMENT
Financial Assignment
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
i. Using two appropriate methods calculating the cost of equity of DMGT:.............................2
ii. Using two appropriate methods calculating the cost of debt of DMGT:...............................2
iii. Calculating the capital structure of DMGT:.........................................................................3
iv. Deriving the single most appropriate estimate of DMGT’s WACC from the calculation
with appropriate justification:....................................................................................................3
Reference and Bibliography:......................................................................................................6

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i. Using two appropriate methods calculating the cost of equity of DMGT:
Method 1 Value
Risk free rate 0.58%
Credit rating BB
Credit risk premium 2.10%
Cost of borrowing 2.68%
Method 2 Value
Annual interest 22,900,000
Annual average debt 752,000,000
Cost of borrowing 3.05%
ii. Using two appropriate methods calculating the cost of debt of DMGT:
Cost of equity
Method 1 Value
Risk free rate 0.58%
Equity beta 0.56
Market return 1.01%
Equity risk premium 0.4300%
Cost of equity 0.34%
Method 2 Value

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Dividend 0.216
Growth rate 1.60%
Price 6.615
Cost of equity 4.87%
iii. Calculating the capital structure of DMGT:
Capital Structure Value
Market value of equity 2,009,000,000
Market value of debt 752,000,000
Percentage of equity 73%
Percentage of debt 27%
iv. Deriving the single most appropriate estimate of DMGT’s WACC from the
calculation with appropriate justification:
Particulars Value
Profit before tax 246,900,000.00
Tax paid 32,700,000.00
Corporate tax 13.24%
Particulars Value
Market value of equity 2,009,000,000

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Market value of debt 752,000,000
Percentage of equity 73%
Percentage of debt 27%
Cost of equity 4.87%
Cost of borrowing 3.05%
Corporate tax 13.24%
WACC 4.26%
The above table mainly represents the overall calculation of weighted average cost of
capital, which could help in detecting the minimum expected returns of an organisation. The
selection of method 2 in both cost of debt calculation and cost of equity calculation is mainly
conducted to identifying accurate WACC of Daily Mail and General Trust plc. The cost of
debt calculation mainly is calculated by dividing the annual net interest payment, which is
been conducted by the company with annual average debt. This mainly helps in identifying
the overall interest rate in which debt is acquired by the organisation. However, method 1
mainly utilises the bond credit rating and risk free rate for detecting the overall cost of debt
incurred by company. However, from the evaluation of annual report there are more than one
ways in which debt is accumulated by the organisation (Grant 2016). The company has used
both short and long term debt accumulation, which does not provide the adequate cost of debt
incurred by the company. Thus, the use of method 2 could eventually help in detecting the
actual interest rate or cost of debt of Daily Mail and General Trust plc.
The cost of equity is mainly detected from method 2, which helps in identifying the
actual cost of equity of the organisation. The relevant dividend is divided with price and
growth rate is added to identify the actual cost of equity. Moreover, method 1 is mainly

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derived with the help of CAPM method, which helps in identifying the overall cost of equity.
Thus, method 2 could be helpful in detecting the actual cost of equity of the organisation,
which could help in deriving accurate weighted average cost of capital. Krüger, Landier and
Thesmar (2015) mentioned that detection of accurate cost of debt and equity directly allows
the investors in identifying the minimum return that needs to be provided by companies. This
valuation of the above table has mainly helped in depicting WACC of Daily Mail and
General Trust plc, which amounts to 4.26%.