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Identify and Evaluate the Sources of Long-Term Finance Available to the Company
Finance & Accounting
Pages 4 (1004 words)
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…
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). ...
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