Strategic Corporate Finance ASSIGNMENT 2 - Essay Example

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Strategic Corporate Finance ASSIGNMENT 2

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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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…
Author : hcarter

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