Financial_Management_Revison.ppt

Calculating WACC Shares: 9.5 million Market Value: E=9.5m *500=4750m D0=45, g=6%, P=500 →D1=45*(1+6%)=47.7, R=D1/P0+g=15.54% Calculating WACC Bonds I: Market Value =93%*700m=651m F=1000, C=8%*1000/2=40, BV=930, t=10*2=20 930=40*[1-1/(1+R)20]/R+1000/(1+R)20 R=4.54%YTM=4.54%*2= 9.08% Bonds II: Market Value=96.5%*550m=530.75 F=1000m, C=7.5%*1000/2=37.5, BV=965m, t=6*2=12 965=37.5*[1-1/(1+R)12]/R+1000/(1+R)12 R=4.13%YTM=4.13%*2= 8.26% Weighted average cost of debt =651/1181.75*9.08%+530.75/1181.75*8.26%= 8.7% Calculating the WACC Re=15.54% Rd=8.7%, Tc=35%, E=4750m, D=1181.75m WACC=0.8008*0.1554 +0.1992*0.0566 =13.57% More Exercise Chapter 15 Q 8, 9, 10, 11, 20 Revision of Lecture 10(Chapter 19) What is Short-term finance? Net working capital = Current assets - Current liabilities Current assets: cash, marketable securities, accounts receivable, inventories Current liabilities :accounts payable, notes payable, expenses payable What is short-term finance? Cash is a main concern! Current Assets + Fixed Assets=current liabilities + long-term debt + Equity Cash +other current assets + Fixed Asset= current liability + long-term debt + Equity Cash= Long-term debt + Equity+ current liabilities –Fixed Assets– other current assets Tracing Cash Cash= Long-term debt + Equity+ current liabilities –Fixed Assets– other current assets Source of cash : Increase long-term debt (borrowing over the long term) Increase Equity (issuing new shares, selling existing shares) Increase current liabilities (getting a 60-day loan) Decrease Fixed Assets ( selling some property) Decrease current assets other than cash ( selling inventory for cash) Tracing cash Cash= Long-term debt + Equity+ current liabilities –Fixed Assets– other current assets Use of cash: Decrease long term debt (paying off a long-term debt) Decrease Equity (repurchase some shares) Decrease current liabilities ( pay off a 60-day loan) Incre