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Strategic Corporate Finance ASSIGNMENT 2
Finance & Accounting
Pages 10 (2510 words)
Task 1 a) Net Assets Value The following is the net asset value of Marks and Spencer for two years i.e. 2011 and 2010: Net Asset Value Net Asset Value Per Share = Net Assets = 2750 = 1.72 = 2677 = 1.69 No. of Shares Outstanding 1600 1584 The net asset value calculated above reflects the value of assets on per share basis.
The company had ?1.69 worth net assets per share which has been improved to?1.72 in 2011. b) Cost of Capital The following are the computations in respect of calculating the weighted average cost of capital for Marks & Spencer. The cost of equity of M&S is found to be 4.5% whereas cost of debt is found to be 4%. The overall weighted average cost of capital after accounting for the value of equity and value of debt, is found to be 4.33%. Cost of Equity (CAPM) Re = Rf + Beta (Risk Premium) = 0.03 + 0.75 (0.02) Re = 4.50% Cost of Debt Rd = Annual Coupon Current Bond Price = 5 125 Rd = 4.00% Value of Equity Ve = Current Share Price x No. of Shares outstanding = 3.76 x 1600 = 6016 Value of Debt Vd = Current Bond Price x No. of Bonds Issued = 125 x 2489 = 3111 100 Weights Wd = Debt = 3111 = 34.09% Debt + Equity 3111 + 6016 We = Equity = 6016 = 65.91% Debt + Equity 3111 + 6016 WACC WACC = [Wd x Rd] + [We x Re] = [ 34.09% x 4%] + [65.91% x 4.5%] = 4.33% c) Dividend Growth Model The following is the calculation of theoretical ex-right price by using Gordon’s dividend growth model. ...
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