FINC 2011, University of Sydney: Corporate Finance Share Price Report

This report addresses the privatization of Information Technology Australia, advising the Commonwealth Government on a potential share price. The analysis begins with selecting proxy companies, Xero Limited and Wistech Global Limited, to determine beta values, which are then used in the Capital Asset Pricing Model (CAPM) to calculate the cost of equity. The report then employs the dividend discount model (DDM) to estimate the share price, providing recommendations based on both proxy companies. The report includes detailed calculations of beta, debt-to-equity ratios, CAPM returns, and share prices, offering a comprehensive financial analysis to guide the government's decision-making process. The report provides a detailed valuation of the company using the dividend discount model, considering the cost of equity to determine a suitable price range for the shares. The study provides a detailed analysis of the share price valuation, using Xero Limited and Wistech Global Limited as proxy companies.

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

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Executive Summary:
The overall assessment directly aims in evaluating the calculations that is required by the
Commonwealth Government of Australia for issuing shares of Information Technology
Australia to normal shareholders. The assessment directly selects a proxy company for
information technology Australia to issue the relevant shares to its new shareholders. Capital
Asset pricing model and dividend discount model has a relatively help in determining the
adequate proxy company which could allow the government to complete the Desire of selling
the shares of Information Technology Australia. Hence, the information of Xero Limited and
Wistech Global Limited has been helpful in detecting the price range in which the
government can sell the shares of Information Technology Australia.

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Table of Contents
Introduction:...............................................................................................................................3
Selecting one of the companies that are possible fort detecting the beta for information
technology Australia:.................................................................................................................3
Using the data from Proxy Company to calculate its betas:......................................................4
Determining the appropriate beta for Information Technology Australia assuming the
company as expected market debt to equity ratio of 0.67:.........................................................8
Calculating the required return on equity Information Technology Australia using the Capital
Asset Pricing Model (CAPM):...................................................................................................8
Identifying the appropriate price for the government to sell Information Technology Australia
shares:.........................................................................................................................................9
Conclusion:................................................................................................................................9
Reference and Bibliography:....................................................................................................11

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Introduction:
The overall assessment directly aims in evaluating the calculations that is required by
the Commonwealth Government of Australia for issuing shares of Information Technology
Australia to normal shareholders. The assessment directly selects a proxy company for
information technology Australia to issue the relevant shares to its new shareholders.
Adequate beta values are calculated for the proxy company, which is then used for the
calculation of Capital Asset pricing model for the information technology Australia. Lastly,
overall share price of the company that needs to be taken into consideration by the
government by selling the shares of Information Technology Australia is adequately depicted
with relevant calculation of dividend discount model.
Selecting one of the companies that are possible fort detecting the beta for information
technology Australia:
Two companies have been selected for information technology Australia, as a proxy
is Xero Limited and Wistech Global Limited. Proxy companies directly fall under the
Information Technology Sector of Australia, which can allow the government to identify the
relevant beta levels, which can be used in deriving the relevant calculation. The use of a
proxy company directly allows organizations to determine the level of Beta and market
exposure that they will face after the share issue. Moreover, the proxy companies are also
used in determining the future debt to Capital ratio and share price valuation that needs to be
conducted for a particular share issue. Damodaran (2016) stated that companies with the help
of proxy method are able to detect the level of share value that would be determined for their
share issue, which can allow them to detect whether the adequate investments from there IPO
will be generated to support their operations. Thanks from the valuation it could be
understood that organization such as Xero Limited and Wistech Global Limited has similar
operations, which can allow the government to determine the level of share value and cost of
equity that will be incurred by the company after the share issue. Therefore, the beta levels of
Xero Limited and Wistech Global Limited can be used as a proxy for Information
Technology Australia (Ehrhardt & Brigham, 2016). For calculating, the beta values the
overall Australian index name ALL ORDINARY INDEX is used, as it provides adequate
information about the current capital market movement of Australia.

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Using the data from Proxy Company to calculate its betas:
Date ^AORD Close Xero Limited Close Wisetech Global Limited
03-12-2018 -1.00% -0.68% -3.57%
04-12-2018 -0.83% -2.98% -2.71%
05-12-2018 -0.22% -1.24% -4.02%
06-12-2018 0.37% -0.46% 1.84%
09-12-2018 -2.26% -4.02% -4.83%
10-12-2018 0.42% 0.94% 2.94%
11-12-2018 1.35% 4.66% 2.63%
12-12-2018 0.14% 1.65% -0.11%
13-12-2018 -0.99% -1.98% -2.02%
16-12-2018 0.95% 2.04% 1.11%
17-12-2018 -1.24% -2.33% -1.76%
18-12-2018 -0.21% 0.18% -0.39%
19-12-2018 -1.36% -1.46% -3.21%
20-12-2018 -0.71% 2.31% -5.70%
23-12-2018 0.48% 3.30% -3.40%
26-12-2018 1.84% 2.53% 5.81%
27-12-2018 0.95% 0.36% -0.48%
30-12-2018 -0.12% 0.29% 2.55%
01-01-2019 -1.47% -0.17% 0.77%
02-01-2019 1.23% 0.33% 1.00%
03-01-2019 -0.31% -2.83% -4.24%
06-01-2019 1.19% 2.47% 5.59%
07-01-2019 0.68% 3.84% 3.34%
08-01-2019 0.95% -0.05% 2.95%
09-01-2019 0.27% -1.15% 1.89%
10-01-2019 -0.33% -0.79% 1.49%
13-01-2019 -0.03% -1.55% -0.10%
14-01-2019 0.66% 0.83% -0.16%
15-01-2019 0.37% 1.42% 3.46%
16-01-2019 0.27% -1.16% -2.08%
17-01-2019 0.53% -0.75% 0.16%

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20-01-2019 0.21% 0.26% 1.76%
21-01-2019 -0.49% 0.83% 0.25%
22-01-2019 -0.26% -0.92% -1.42%
23-01-2019 0.37% -0.45% 1.44%
24-01-2019 0.68% 0.69% 2.78%
28-01-2019 -0.53% -1.13% -1.58%
29-01-2019 0.20% -4.30% -2.45%
30-01-2019 -0.23% 8.77% 4.36%
31-01-2019 -0.03% -0.53% 1.62%
03-02-2019 0.47% -2.63% -1.64%
04-02-2019 1.76% 3.87% 0.59%
05-02-2019 0.39% 2.76% 3.42%
06-02-2019 1.10% 2.71% 2.60%
07-02-2019 -0.37% -0.69% -2.03%
10-02-2019 -0.12% 0.17% 2.07%
11-02-2019 0.33% 1.67% 2.35%
12-02-2019 -0.14% 2.10% 0.23%
13-02-2019 -0.01% 1.82% 0.72%
14-02-2019 0.15% -0.60% 0.31%
18-02-2019 0.58% 0.04% 4.00%
19-02-2019 -0.14% -0.08% -10.09%
20-02-2019 0.63% -0.97% -5.37%
21-02-2019 0.44% 1.88% -4.32%
24-02-2019 0.35% 0.68% 0.05%
25-02-2019 -0.87% -2.24% -4.20%
26-02-2019 0.40% -1.29% 1.75%
27-02-2019 0.31% 0.36% 3.72%
28-02-2019 0.34% 1.33% 0.93%
03-03-2019 0.46% 3.72% 3.70%
04-03-2019 -0.33% -2.32% 2.63%
05-03-2019 0.72% 0.62% 2.42%
06-03-2019 0.28% -0.10% -2.27%

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07-03-2019 -0.90% -0.78% -1.11%
10-03-2019 -0.38% 0.19% -2.44%
11-03-2019 -0.04% -0.82% 6.06%
12-03-2019 -0.23% -1.63% 1.56%
13-03-2019 0.33% 2.06% 3.95%
14-03-2019 -0.03% 2.21% 0.54%
17-03-2019 0.30% -0.46% 3.07%
18-03-2019 -0.11% -1.72% 0.00%
19-03-2019 -0.40% 3.09% -0.78%
20-03-2019 0.03% -1.30% 1.65%
21-03-2019 0.44% 0.81% -0.26%
24-03-2019 -1.15% -3.44% -4.46%
25-03-2019 0.07% -0.42% 1.12%
26-03-2019 0.07% 1.86% 1.38%
27-03-2019 0.63% -1.05% 1.88%
28-03-2019 0.08% 0.89% -0.64%
31-03-2019 0.61% 0.70% -2.38%
01-04-2019 0.45% 3.37% 2.48%
02-04-2019 0.65% 0.12% 0.95%
03-04-2019 -0.76% 0.77% -0.51%
04-04-2019 -0.79% -2.80% -3.06%
08-04-2019 0.64% 1.71% 0.58%
09-04-2019 0.07% 0.91% 0.40%
10-04-2019 0.02% 0.84% -0.18%
11-04-2019 -0.35% -0.27% 1.72%
12-04-2019 0.84% 1.62% 0.00%
15-04-2019 0.01% -0.42% -0.78%
16-04-2019 0.38% -1.06% 1.48%
17-04-2019 -0.35% 0.49% -5.81%
18-04-2019 -0.01% -0.50% -2.83%
23-04-2019 0.96% 3.86% 0.28%
24-04-2019 0.93% 1.86% 4.73%

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26-04-2019 0.04% -0.61% 1.70%
29-04-2019 -0.36% 1.13% 1.63%
30-04-2019 -0.48% -0.20% -3.12%
01-05-2019 0.75% 1.07% 1.16%
02-05-2019 -0.56% 0.00% -1.28%
03-05-2019 -0.04% -0.69% 3.76%
06-05-2019 -0.89% -2.07% -5.13%
07-05-2019 0.21% 0.99% 4.86%
08-05-2019 -0.50% -1.07% -4.16%
09-05-2019 0.40% 0.56% -0.86%
10-05-2019 0.25% 2.55% 0.78%
13-05-2019 -0.18% -1.09% -1.40%
14-05-2019 -0.85% -1.45% -2.20%
15-05-2019 0.69% 1.04% 2.25%
16-05-2019 0.73% 10.75% 2.39%
Particulars Xero Limited Close Wisetech Global Limited
Beta 1.63 2.21
Calculations in the above table directly provide information about the overall beta
levels of Xero Limited and Wistech Global Limited, which can be used for further analysis
for the organization. The calculation of beta has relatively indicated that Xero Limited value
are1.63, while Wistech Global Limited has beta level of 2.21. The use of adequate returns
from index and stock or directly used for detecting the beta levels of the company. Therefore,
with the help of Beta levels derived in the above calculation relevant analysis can be
conducted on the information technology Australia (Fracassi, 2016). The calculation of beta
is relatively conducted on a certain time frame, which comprise of only one year period, as
the proxy companies current beta values need to be detected for the Information Technology
Australia. The two companies selected as a proxy has been operating in the Australian market
for many years, where taking higher duration of Beta would not allow to detect the current

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fluctuations in the industry. Hence, the selection of one year of data is conducted for
detecting the beta values, which can be used as a proxy for information technology Australia.
Determining the appropriate beta for Information Technology Australia assuming the
company as expected market debt to equity ratio of 0.67:
Particulars Xero Limited Close Wisetech Global Limited
Debt to equity ratio 0.30 0.53
The above table provides information about the debt to equity ratio of Xero Limited
and Wistech Global Limited, which can be helpful on selecting the best proxy company for
Information Technology Australia. From the overall evaluation, it can be detected that Xero
Limited can be considered, as an adequate proxy company for the Information Technology
Australia. The information technology Australia is considered to have a market debt to equity
ratio of 0.67, which can be complemented by the debt to equity ratio of Xero Limited (Dang,
Li & Yang, 2018).
Calculating the required return on equity Information Technology Australia using the
Capital Asset Pricing Model (CAPM):
Particulars Xero Limited Close Wisetech Global Limited
Rm 13.15% 13.15%
Rf 1.64% 1.64%
Beta 1.63 2.21
CAPM 20.39% 27.02%
The above table directly provides information about the Capital Asset pricing model,
which has been used for deriving the overall cost of equity for Xero Limited and Wistech
Global Limited. Therefore, with the help of market return of All Ordinary Index and the risk
free rate of Australian bond issued for detecting the cost of equity of both the companies. The
overall cost of equity 40 Limited is at the levels of 20.39%, which is due to the low beta level
of the company. However, the cost of equity values of Wistech Global Limited has mainly
valued at 27.02%, where the beta levels are 2.21. Moreover, the cost of equity can be used for

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fueling the calculation of dividend discount model to detect the price range in which the
company can distributed shares (Atanasov & Black, 2016).
Identifying the appropriate price for the government to sell Information Technology
Australia shares:
Particulars Xero Limited Close Wisetech Global Limited
Dividend 1 0.5 0.5
Expected to grow 4% 4%
Cost of equity 20.39% 27.02%
Share price 3.05 2.17
The above table provides information about the overall calculation that has been
conducted to determine the share price value of Information Technology Australia in regards
to the cost of equity for Xero Limited and Wistech Global Limited. Therefore, it could be
understood that if the government wishes to utilize the values from Xero Limited then the
share price of Information Technology Australia at the level of 3.05. On the other hand, if the
Government utilizes the values of Wistech Global Limited then the share price for
information technology Australia will be at the levels of 2.17. Both the values have relatively
derived with the help of dividend discount model, which can allow the government to
determine the price range within which shares of the company can be distributed to the
shareholders (Foley & Manova 2015). Therefore, the data used for analysis as a relatively
help in identifying the share price for information technology Australia. hands, it could be
identified that the proxy organization was appropriate for deriving the overall share price
value that could be initiated by the government for the sale of Information Technology
Australia share.
Conclusion:
The overall assessment directly evaluates different calculation such as beta, debt to
equity ratio, and dividend discount model for helping the Australian government to launch
the shares of Information Technology Australia. The calculations directly highlighted two
different proxy companies, which can be used by the government to launch the share of
organization. Capital Asset pricing model and dividend discount model has a relatively help

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in determining the adequate proxy company which could allow the government to complete
the Desire of selling the shares of Information Technology Australia. Hence, the information
of Xero Limited and Wistech Global Limited has been helpful in detecting the price range in
which the government can sell the shares of Information Technology Australia.

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Reference and Bibliography:
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