Capital Budgeting, Cost of Capital and Corporate Actions
The goal of this report is to apply the major course learning objectives in a real-life setting. Students will work in teams and choose a publicly traded company, for which they will propose a capital project which will increase the shareholder value. Teams will also analyse a recent corporate action and its affect on different types of shareholders.
The report will consist of three main parts:
Capital budgeting project proposal. Here the main goal is to be able to identify a project that could bring a positive NPV for the chosen company and be able to identify all the relevant cash flows for the project. The key consideration for this part is the ability to estimate the cash inflows and outflows as a result of implementing the project using the information from similar projects.
Calculate the cost of capital for the company and adjust it, if needed, for the capital budgeting project proposed. Using the companys financial statements and data from sources such as Yahoo Finance, Google Finance and/or Morningstar teams will determine and calculate the weights of all types of capital currently used by the company, calculate the cost of each type of capital determined, and estimate the companies weighted average cost of capital.
Combining the outputs from parts 1 and 2, students will analyse the capital budgeting project proposal using various capital budgeting and project analyses techniques and determine its impact on the shareholders value. To further analyse how this company generates the value to its shareholders students will identify and analyse one recent corporate action (cash dividends, share repurchases, and rights issue) carried out by the company management. For this corporate action provide a brief description, reasoning behind it given by management and opinion by analysts, if available, as well as show the market’s reaction using the changes in stock price around this event.
For this assigment I need:
-Project Idea for a chosen company with estimated cash flows;
– Cash flow estimates should include Initial Investments, FCF estimates during the project periods, and terminal cash flows.
– Calculation of the WACC for the chosen company;
– Analysis of the appropriateness of WACC calculated for the project and, if needed, the adjustment of the WACC to be used as project cost of capital.
