Analyse a publicly listed Company and generate a business report that recommends and justifies an appropriate weighted average cost of capital (WACC, Topic 7).

ASSESSMENT TASK 2: DESCRIPTION

Origin Energy Business Report

The aim of this assessment is to analyse a publicly listed Company and generate a business report that recommends and justifies an appropriate weighted average cost of capital (WACC, Topic 7).

Company:          Select one company from the following:-

• ALU   Altium
• COH Cochlear Limited
• DLX Dulux Group
• MTS Metcash
• ORG Origin Energy

Reference: 2019 Annual Report (or 2018)

Download from:

Your selection must be based on 2019 report releases.

You will be required to search for data as part of the assignment to find financial information such as the the current risk free rate (e.g. for a 10-year investment, the Commonwealth Government 10-year Treasury Bond yield is appropriate) and you need to calculate the firm’s beta. you can access the Morningstar database (datanalysis). Searching other websites such as the Reserve Bank of Australia is also required. In all cases you must note where you obtained information from and the date of access as part of your referencing.

Instructions:

1. Analyse the publicly listed company that you have selected.
2. Prepare an analytical report by completing the following tasks
   1. Search for data and financial information and the current risk free rate. Access to this type of data and information. Review the
      1. Morningstar database (DatAnalysis)
      2. Reserve Bank of Australia rba.gov.au – go to the statistics link (top right hand side, click and choose Interest Rates under the Economic and Statistics Section).

• Reference all information and the date of access as part of your referencing section in the report.

3. Calculate the Weighted Average Cost of Capital using an appropriate technique.
4. Explain your calculations and the judgements you made in arriving at your answer.
5. Calculate gearing ratios and describe any difficulties in doing so.
6. Analyse your findings with reference to capital structure theory.
7. Provide a recommendation to the Board on the firm’s current capital structure.
8. Provide a reflection on your work and your report. In undertaking your reflection you should consider the following (Hint it is helpful to keep notes on your sources of information in addition to the ones you chose).
   1. What weights should you use when calculating the WACC, market value weights or accounting book values? To do this find the market value of equity (no. of shares times the share price) and the market value of financial debt (if no traded debt you may need to use accounting book values) then compare the weight calculations with those calculated using book values (shareholder funds plus total financial debt). Do they differ and what would you use?
   2. What risk free rate would you use – 30 day, 3 month, 6 month 1 year, 3 year, 10 year, of 30 year? Would it make a difference?
   3. Should you use a published beta such as that available on the Morning Star Data Base (DatAnalysis in the Library), calculate the beta yourself (you can get share prices and market indexes from Yahoo Finance), or pay someone to do it for you?
   4. Do you calculate a return on the market or use the spread between the market and the risk free rate (6% to 8% premium according to research)?
   5. Do you use the debt expense as per the accounts or some indicator rate?

 

Useful Information:

1. Please ensure the format requirements below are met.
   1. The report shall be submitted on white paper, double spaced and be printed on ONE side of the page only
   2. The paper size shall be A4 and may not be scented
   3. The report shall be in Arial Font, size 11 pt and black colour
   4. The report shall have a 3cm margin on the left hand side, 2.5 cm margin on the right hand side
   5. The report shall have a 2.5 cm top margin and a 2.5 cm bottom margin.
   6. The maximum word length is 1500 words. This is ABSOLUTE. The word length of the report shall be shown at the bottom of the report.
   7. The report shall be submitted with the approved CLBG cover sheet on the front.
   8. The report is due at 5.00 pm on the due date.
   9. Due to the nature of the assignment, all references to scholarly articles are required
   10. Failure to comply with any of these requirements will result in a zero grade being awarded.

Please note that wikipedia and gurufocus are not acceptable references for this assignment