I NEED THE WORK IN MAXIMUM 3 HOURS
ffff2019
calculationpart.docxHow was the cost of capital calculated? Explain your calculations.
Cost of capital part:Clearly presented, informed cost of capital calculations (done) ; clearly sourced data;
an explanation and evaluation of your approach, including discussion of any assumptions made.
So you have to write 400 word explaining the calculation and writing that you didn’t use and add the SOVEREIGN PREMIUM because the risk free rate was lower in South Korea than in the parent country US .
THEN explain all the limitation that I had
At the end say that the WACC founded will be used as a discounted rate in the 3rd assignment
I also need to write 100 words about currency risk management for the international complexity related for sure to my company from Shapiro at the end you have the pictures but don’t add this part to the calculation part is something different
Cost of Capital
Calculation part
|
Name |
Number |
Reference |
|
Risk free rate (Rf) |
2.53% |
(Bloomberg, 2019) |
|
Return on the market (Rm) |
21.83% |
(Bloomberg, 2018) |
|
Rate of Corp tax |
21% |
(USA.Gov, 2019) |
|
Company ße |
0.52 |
(Reuters, 2019) |
|
Parent D/E proportion |
19/81 |
(Coca Cola Financial statement) |
|
Debt Value |
45.020 |
(Coca Cola financial statement) |
|
Debt’s interest |
919 |
(Yahoo, 2019) |
|
Market cap |
192.565
|
(Yahoo, 2019) |
Formulae Sheet
|
Cost of Equity
|
Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return) |
|
Ungearing |
ßa = ßg x Ve/(Ve + Vd (1 - t) |
|
Regearing |
ße = ßa x Ve + Vd (1-t)/ Ve |
|
Weighted Average Cost of Capital |
|
|
Cost of Equity (CAPM) |
Erj = Rf + Be (Rm – Rf) |
|
Risk Premium
|
Rm-Rf |
Calculations
· Proportion of Debt and Equity for Coca Cola
Debt’s weight= Value of Debt / (E+D)
Debt’s weight= 45.020/(192.565 + 45.020)
Debt’s weight= 45.020/237.585= 0.1894 (19%)
Equity weight= 100-19= 81%
· Apply ungearing formula
· ßa= ße x
· ßa= 0.52 x
· ßa= 0.52 x
· ßa= 0.52 x
· ßa= 0.52 x
· ßa= 0.52 x 0.8436= 0.44
· Find ße with proportion established (regearing)
ße= ßa x
ße= ßa x
ße= ßa x
ße= ßa x
ße= ßa x
ße= 0.44 x 2.84 = 1.2510
· Find Ke
Er = Rf + Be (Rm – Rf)
Er = 0.0253 + 1.251 (0.2183 – 0.0253)
Er = 0.0253 + 1.251 x 0.193
Er = 0.0253 + 0.24 = 0.2653 (26.53%)
· Find Kd
Kd= interest on debt / book value of debt
Kd= 919/45020 = 0.020 = 2%
· Calculate Weighted Average Cost of Capital
WACC= x Ke + x Kd x (1-Tc)
WACC= 0.3 x 0.2653 + 0.7 x 0.02 x (1-0.21)
WACC= 0.079 + 0.7 x 0.02 x 0.79
WACC= 0.079 + 0.011= 0.09 = 9%
You have to write in 70 word about currency risk management for the international complexity related for sure to my company from Shapiro and here you have it in the picture so related with this part
