You will have to either calculate or source for the beta of the company. You can try www.morningstar.com.au or www.reuters.com. If you are using the beta from an online source, you have to investigate the time period of their calculations and compare betas from various sources. You can use the 10-year Australian government bond for the risk-free rate. Your Rm must be the same as the previous section.Include a table to show clearly the time frames of the variables used to calculate CAPM. DGM calculationsAll information needed to calculate Rd using the DGM can be found in the annual report; income statement and balance sheet section.Use the following formulas:D1 is the sum of the dividends (payment date) for the reporting period. Do not include any special dividends as it is a once-off occurrence. Do not include franking credits PO is the closing price of the share of the last reporting period. Use profit after tax for net income. Include the page number of the annual report where you have obtained the figures Always use numbers from the main Income Statement and Statement of Financial Position. Always use numbers from the main Income Statement and Statement of Financial Position. Use statutory not underlying and do not use adjusted figures. If your company has many divisions/operations, you have to use the numbers of the main group. You may use the calculated EPS from the annual report, but check if they have used adjusted figures and note in your report what they have adjusted for. Make a note in your report that as the payments are 6 months apart, the numbers do not fit the DGM formula well. 3 Selection of Re calculation Identify if there had been major events that occurred that may have caused a huge fluctuation in volatility: this will affect Re through CAPM. Investigate if there had been a change in the dividend payout policy: this will affect Re through DGM. CAPM or DGM: which one do you feel is more accurate/appropriate and why? Your reasoning must be based on your identification of shareholders from the previous section. Use this to calculate the WACC. 1 Calculation of RdBusiness loans rates vary with the terms of the contract. However, you can use the public available information as an estimation.Review the Statement of Financial Position in the annual report and look at the Non-current liabilities. You need to identify maturity, security, variability and rate.Maturity you will need to identify all the ones 1 year or less. These are to be ignored. We are only identifying the long-term debts. Typically, these would be in the borrowings section. You will have to read the notes to the items.Security you need to identify if the borrowings are secured or not. Secured borrowings are at a lower rate.Variability you need to identify if the various instruments are fixed or variable loans. You cannot use the interest repayments to reverse engineer the rate.Rate need to establish the base rate. There is no fixed approach, but you can follow these guidelines. Make sure to do the work and show evidence of it in your case study. You cannot be awarded marks if you do not present your workings:Bonds- for bonds you must attempt to calculate the yield to maturity and use that as rate. The week 6 tutorial will cover the theoretical explanation on how to do it. You can use Thomson Reuters Eikon to source the bond yield to maturity.Next you need to rank the loans in order of risk and apply a margin for each loan. Doing some research to justify the margins will earn you full marks for this section.Look at the annual report for clues. Often they will mention the name of the bank or the rates used. If there are rates provided, you still have to go through the above steps and include a margin.
Cost of capital guide- CAPM calculations
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