ASSESSMENT TASK 2: DESCRIPTION
This assignment is an application of the weighted average cost of capital (WACC, Topic 7).
Your instructor will allocate you a publicly listed company to analyse and report on. You are to complete the four tasks below and prepare a report.
You will be required to search for data as part of the assignment to find financial information such as the firm’s beta and the current risk free rate. You are encouraged to use Bloomberg terminal located at JCU Financial Lab to collect the information for your assignment. Alternatively, through the JCU library website you can access the Morningstar database (Datanalysis) which will assist you. Searching other websites such as the Reserve Bank of Australia is also required (rba.gov.au – go to the statistics link (top right hand side, click and choose Interest Rates und the Economic and Statistics Section). In all cases you must note where you obtained information from and the date of access as part of your referencing.
Tasks:
Calculate the Weighted Average Cost of Capital using an appropriate technique.
Explain your calculations and the judgements you made in arriving at your answer.
Calculate gearing ratios and describe any difficulties in doing so.
Analyse your findings with reference to capital structure theory.
Provide a recommendation to the Board on the firm’s current capital structure.
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).
What weights should we 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/
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?
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/
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).
Do you use the debt expense as per the accounts or some indicator rate?
ASSESSMENT TASK 2: CRITERIA SHEET
A3 Identify and learning opportunities and self-improvements
Not yet proficient
N
Pass level
P C
Competent
D HD
Critical thinking
Unable to distinguish between practical choices when for the majority of options available in calculating a WACC
Able to use theory to distinguish between some practical choices but does not display an indepth of the theory available in calculating a WACC
Able to use theory to distinguish between practical choices when for the majority of options available in calculating a WACC
Self-Awareness
Demonstrates interest in and engagement with their own experiences as a learner.
Makes assessments of their own capabilities and performance that demonstrate some accuracy.
Identifies both areas of accomplishment and areas for further improvement in relation to their own knowledge, skill development and personal approaches to learning and development.
Demonstrates accurate judgement of capabilities and performance to recognise key areas for success in both professional and personal well-being.
Reflection
Reviews past experiences to describe and interpret experiences with some depth.
Demonstrates some level of contemplation as to how the new insights may be applied in the future.
Reviews past experiences to interpret and evaluate experiences in depth.
Demonstrates sound level of contemplation as to how the new insights may be applied in the future.
Review prior learning in depth, revealing fully clarified meanings. Demonstrating a synthesis of life experiences resulting in a deep understanding of oneself and others and an ability to flex, adapt, and accommodate oneself to others and extant situations.
S3 Convey information clearly and fluently, in high quality written form appropriate for their audience
Not yet proficient
N
Pass level
P C
Competent
D HD
Context of and Purpose for Writing
Includes considerations of audience, focus, purpose and the circumstances surrounding the writing task
Demonstrates a basic understanding of context, audience, focus and purpose of assigned task (e.g.: displays a basic awareness of audience’s requirements /expectations).
Demonstrates a sound understanding of context, audience, focus and purpose of assigned task (e.g.: displays awareness and reasonable alignment with audience, purpose and context).
Demonstrates a high level understanding of context, audience, focus and purpose of assigned task (e.g.: displays alignment with audience, purpose and context).
Content Development
Logical flow, critical analysis, clear & relevant outcomes; concise and cohesive
Demonstrates basic ability to organise content in a logical, concise and cohesive manner with basic critical analysis, and outcomessupported with evidence.
Demonstrates sound ability to organise content in a logical, concise and cohesive manner with soundcritical analysis, and outcomessupported with clear evidence
Demonstrates a high level of ability to organise content in a logical, concise and cohesive manner with high levelcritical analysis, and outcomessupported with quality evidence
Control of Syntax and Mechanics
Sentence construction; grammar; punctuation & spelling
Uses appropriate language that generally conveys meaning to the readers, although writing may include some errors.
Uses appropriate language that conveys meaning to readers with clarity and minimal errors.
Uses appropriate language at a high level that conveys meaning to readers with clarity, and is virtually error-free.
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