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WACC Calculation and Financial Analysis

The document outlines the calculation of the weighted average cost of capital (WACC) and the cost of various sources of funds including loans, unsecured notes, debentures, and preferred stocks. It details the methodology for calculating costs associated with each component, including post-tax costs and the cost of equity using the Multi-Stage Dividend Discount Model (DDM). Additionally, it provides a breakdown of initial investments, depreciation schedules, and financial metrics such as NPV, IRR, and payback period.

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Sudip Gamer
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5 views13 pages

WACC Calculation and Financial Analysis

The document outlines the calculation of the weighted average cost of capital (WACC) and the cost of various sources of funds including loans, unsecured notes, debentures, and preferred stocks. It details the methodology for calculating costs associated with each component, including post-tax costs and the cost of equity using the Multi-Stage Dividend Discount Model (DDM). Additionally, it provides a breakdown of initial investments, depreciation schedules, and financial metrics such as NPV, IRR, and payback period.

Uploaded by

Sudip Gamer
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Assignment

Part A
Calculation of weighted average cost of capital
Sources of fund
Loan
Unsecured Notes
Debentures
Total Value of Debt
Preferred stock A (WP1)
Preferred stock B (WP2)
Common equity
Total value of Capital

Calculation of WACC
Sources of fund
Loan
Unsecured Notes
Debentures
Preferred stock A (WP1)
Preferred stock B (WP2)
Common equity

Calculation of cost of each component


Loan
Principal
Monthly payment
Terms
Cost
Annualized cost
Post Tax Cost of capital

Unsecured Notes
Coupon Rate
Coupon Interest
Price
Maturity
Cost
Post tax Cost of Unsecured loan

Debentures
Coupon Rate
Coupon Interest
Price
Maturity
cost
Post tax Cost of debentures

Cost of Preferred Stock A


Annual Dividend(D)
Preferred stock trade each(P)
Cost of preferred stock

Cost of Preferred Stock B


Dividend(D)
Price of per stock(P)
Inflation
Inflation adjustment
Cost of Preffered stock

Cost of Equity – Common Stock

Use Multi-Stage Dividend Discount Model (DDM)


growth 14%
D1
D2
growth 9%
D3
D4
D5
growth rate 6%
D6
we assume a discount rate of 10%
terminal value at year 5

now present value of dividend year 1 to 5


growth 14%
D1
D2
growth 9%
D3
D4
D5

now present vlue of terminal value

total present value

Cost of Equity(Re)=D1/P0+g
​ ​
Item
Fixed contract price
Total supply commitment
Development period
Plant refurbishment cost
Machinery & equipment cost
Casks (initial)
Opportunity cost (land and plant sale) 8.9 million (included in year 0)
Working Capital
Excise duty
Fixed Costs (Yr 1 of operations)
Variable Costs (Yr 1)
Corporate tax rate
Discount rate 9.91% (WACC)-2.2%=7.71% (adjusted for low risk)

Net Initial Investment (Year 0)


Item
Refurbishment
Machinery
Casks
Opportunity cost (land)
Total NINV

Depreciation Schedule
Asset
Plant
Machinery
Casks

year
sales
excise duty exp
varible cost
working capitl
fixed cost
depreciation
plant
machinery
csks
net profit
after tax 30%
investtment
discount rate

using NPV excel formul


NPV

IRR

paybck period
Amount
64,300,000.00
246,500,000.00
833,600,000.00
1,144,400,000.00
26,048,000.00
179,335,000.00
1,786,000,000.00
3,135,783,000.00

Weights
2.05%
7.86%
26.58%
0.83%
5.72%
56.96%

(Wd*Kd(1-t))+(Wp*Kp)+(We*Ke)+(W’e*K’e)

64,300,000.00
946,015.68
96.00
0.76%
9.12%
6.38%

5.30%
26.5
986.00
18.00
5.50%
3.85%

8.20%
82
1042
27
8%
5.5%

$4
$47.46
8.4%

0.75
55.18
24%
0.768
1.39%

Model (DDM)

0.6270
0.7148

0.7791
0.8492
0.9257

0.9812004783372

24.53001195843

0.57
0.590727272727273

0.585357024793388
0.580035597295267
0.574762546410764

15.2312074798852

18.1320899211119

11.411403112416400%
Value
$348 per bottle
585,000 bottles over 16 years
2 years (no revenue)
$26.8 million
$8.35 million
$465,000 (repeat after 9 years)
8.9 million (included in year 0)
4% of annual sales revenue
$31.76 per bottle
$540,000 + annual inflation (2.4%)
$48.22 per bottle + 2.4% inflation
30%
9.91% (WACC)-2.2%=7.71% (adjusted for low risk)

Value
$26,800,000
$8,350,000
$465,000
$8,900,000
$445,150,000

Life (years)
16
6
9

-445150000
9.91%

$323,558,237.27

22%

4 years and 23 days


Weights
2.05%
7.86%
26.58%
36.49%
0.83%
5.72%
56.96%
100.00%

Cost of capital weight * cost of capital


6.38% 0.13090548466534500%
3.85% 0.30260518014781100%
5.5% 1.45555148353230000%
8.4% 0.07001009054160990%
1.39% 0.07959734458666310%
11.411403112416400% 6.49941847340067000%
WACC 8.53808805687439000%
8.54%

Month(12*8)
Monthly

Semi annually
Face value 1000

9 year

Annulayy
Method Annual Depreciation
Straight-line $1.675M
Straight-line $1.392M (Years 3–8)
Straight-line $51.67k (reinvest in Year 10)

1 2 3 5 5 6
203580000 203580000 203580000 203580000 203580000 203580000
-18579600 -18579600 -18579600 -18579600 -18579600 -18579600
-28885708.8 -29578965.8112 -30288861 -31015794 -31760172.7 -32522417
-8143200 -8143200 -8143200 -8143200 -8143200 -8143200
-552960 -566231.04 -579820.585 -593736.28 -607985.95 -622577.61

1675000 1675000 1675000 1675000 1675000 1675000


1392000 1392000 1392000 1392000
51670 51670 51670 51670 51670 51670
149145201.2 148438673.1488 149107188.4 148366340 147607711 146830876
104401640.84 103907071.20416 104375031.9 103856438 103325398 102781613
104401640.84 103907071.20416 104375031.9 103856438 103325398 102781613
fulfilled 416540182
remaining -28609818
0.771240742 23.1372222
-340748359.16 -236841287.95584 -28609818 74715579.93
7 8 9 10 11 12 13 14 15 16
2.04E+08 203580000 2.04E+08 2.04E+08 2.04E+08 2.04E+08 203580000 2.04E+08 2.04E+08 2.04E+08
-18579600-18579600 -18579600-18579600-18579600-18579600-18579600 -18579600-18579600-18579600
-33302955 -34102226-34920679-35758775-36616986-37495794 -38395693-39317189 -4E+07-41227061
-8143200 -8143200 -8143200 -8143200 -8143200 -8143200 -8143200 -8143200 -8143200 -8143200
-637519 -652819.94 -668488 -684531 -700960 -717783 -735009.91 -752650 -770714 -789211

1675000 1675000 1675000 1675000 1675000 1675000 1675000 1675000 1675000 1675000
1392000 1392000
51670 51670 51670
1.46E+08 145220824 1.43E+08 1.42E+08 1.41E+08 1.4E+08 139401497 1.38E+08 1.38E+08 1.37E+08
1.02E+08 101654577 1E+08 99462225 98849978 98223036 97581048 96923652 96250479 95561150
1.02E+08 101654577 1E+08 99462225 98849978 98223036 97581048 96923652 96250479 95561150
days

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