i need the work in 5 hours not more
ffff2019
calculationpart.docxIm doing a project my company is CocaCola investing in South korea
I did all the calculation needed but I need you to explain .
How was the cost of capital calculated? Explain your calculations.
Cost of capital part: 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 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(cocacola from Shapiro as reference ) at the end you have the pictures but don’t add this part to the calculation part is something different .
Cost of Capital
The cost of capital is the minimum rate of return and investment project must generate in order to pay its financing cost. The cost of capital is likely to change across different countries .
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%
