StudentShare solutions

# Identify and Evaluate the Sources of Long-Term Finance Available to the Company - Essay Example

Nobody downloaded yet

## Extract of sample Identify and Evaluate the Sources of Long-Term Finance Available to the Company

Thirdly, the result from the previous estimation will be analyzed. Finally, this study will give recommendation on how the project should be financed if the board of director decides to carry out the project. TASK 1: Estimate the Weighted Average Cost of Capital for Made-Up PLC The author will now undertake the estimation of the company’s weight average cost of capital (WACC) by estimating the cost of capital from each financial source of the company. The company currently has three long-term sources of finance, which are ordinary shares, preference shares and bond issuance. 1: The Cost of Ordinary Shares, Ko The company has 4,600m of ordinary shares currently sold on the market at ?1.55 per share. Hence, the market value of ordinary shares is: 1.55 * 4,600m = ?7,130m One method which can be used to estimate the cost of ordinary shares is Capital Asset Pricing Model (CAPM). ...
Hence, the rate of return on long term (10 years) UK government Bond will be used for this case. According to the data from Bloomberg, the rate was quote as 2.35% (Bloomberg, 2011). In estimating a beta (?) for the company, there are two estimation methodologies, using a ? of an existing firm in the same line of business and averaging ?s of several companies in the same industry. In this analysis, the ? is derived from that of an existing firm with similar capacity to Made-UP Plc’s. This estimation has an advantage over the average ? methodology since firms within the same industry could have very different ?s and the resulted ? could be unpredictable and unsuitable to Made-UP Plc’s. Since Made-UP Plc’s and TESCO are ones of the largest firms in the industry and have very similar lines of business, the TESCO’s beta will be used for this case, which is 0.7546 (Financial times, 2011). In the case of risk premium, the figure is taken from an empirical study by Fernandez and Campo (2010). They investigated the average market risk premium used by analysts and companies in the UK in 2010. The result indicated that the average market risk premium used by analysts was 5.2 and 5.6 for the companies. The author will use 5.2 for this case. According to the figures above, the cost of ordinary share can be calculated as follows, The cost of ordinary shares = 2.35 + (0.7551 * 5.2) = 6.28% 2: The Cost of Preference Shares, Kp The company has 150m of irredeemable ?1 nominal preference shares with coupon rate of 5%, payable annually. The shares are currently selling at ?0.68 per share. Hence, the market value of preference shares is: 150m * ?0.68 = ?102m The Cost of preference shares can be calculated by ...Show more

## Summary

Introduction The intention of this report is to provide an analysis and recommendation to the Made-Up Plc’s board of director on Made-Up Town Outlets project (MUTOs). This report will, firstly, identify the company’s sources of finance, calculate a cost of capital of each source, and estimate the weighted average cost of capital…
Author : alyson70
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Identify and Evaluate the Sources of Long-Term Finance Available to the Company"
with a personal 20% discount.
Grab the best paper

### Check these samples - they also fit your topic

Corporate Finance: Expansion Plc case
This paper covers the entire area of long term financing which the Expansion Plc can consider. Along with the various sources of financing, the cost associated with the various sources, associated risks, positive and negative side of each of the popular sources have been discussed in order to identify the suitability of each source with the Expansion Plc.
14 pages (3500 words) Essay
Short term finance sources
This research is being carried out to evaluate and present four most common short term sources of finance that a business uses to finance its expenses and they are: 1) Bank overdraft 2) Short term loans 3) Trade credit 4) Sale of unused assets They can be used to pay for the salaries of the employees and other administrative costs.
6 pages (1500 words) Essay
Finance
Then, explanations and justifications of the results are discussed with some suggestions for improvements. Product Division Category Ratio 2009 2008 Result Liquidity Ratios Current Ratio 1.33 1.09 Unfavorable Quick Ratio 0.63 0.47 Unfavorable Stock Turnover 113.84 99.51 Favorable Debtor Days 42.69 27.58 Unfavorable Creditors Days 29.15 51.06 Unfavorable Profitability Ratios Net Profit Margin 3.36% 1.98% Favorable Operating Profit Margin 6.38% 5.71% Favorable Return on Assets 3.56% 1.96% Favorable Return on Equity 10.23% - Critical Analysis:- Liquidity which is defined by Lawrence J.
4 pages (1000 words) Essay
Long-Term Sources of Finance
It also includes the suitability of each source of financing to different firms based on the kind of business stage the firm is in. The long-term finances for a firm are mainly of two types- Equity and Debt. Mainly four sources of long-term finances are discussed i.e.
8 pages (2000 words) Essay
Relating Of Finance Available For Marc Day And SwapgameCom
It was requested by Marc Day, the founder of SwapGame.com Limited, an internet-situated, games-letting payment service in 2008. This investigation was carried out by a consultant of Business Link, which is a government’s online resource offering advice, information and guidance service to businesses.
6 pages (1500 words) Essay
Understand the Sources of Finance Available to a Business
Short-term business financial needs include payments of its human resources, offsetting available short-term debts, for purchases and other core operations of the business as those in the petty cash book operations. Trade credits are sources of finance for business.
5 pages (1250 words) Essay
Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i
It is not that an unexpected increase or decrease in the foreign currency may not be profitable and will always cause a loss. Forward or future market concerns the delivery of exchange rate to be delivered with in 3 days or more. Here the banks will use the forex rate on which they are willing to buy or sell the currency with in a month or more after the transaction.3
5 pages (1250 words) Essay
Long-term Sources of Finance
It is not desirable to use short term funds because of higher rate of interest and because of their limited availability. If the short term funds are diverted for long-term purposes, business will suffer for want of working capital required for inventory, bills receivable and operating expenses.
14 pages (3500 words) Essay
Entrepreneurial Finance
It is a never ending process and is extremely important in the early stages of any new venture especially when an entrepreneur needs to prepare a preliminary business plan. A business plan is a document which is prepared by the entrepreneur,
8 pages (2000 words) Essay
Discuss and evaluate the various methods available for long term investment appraisal
Graham and Dodd delineated investment as a process of consigning funds into something that after prior detailed analysis (unlike speculation) shows high-level security for the principal fund, as well as the potential for accruing large-scale gains within a specific
3 pages (750 words) Essay
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Click to create a comment
Contact Us