Strategic Financial Decision Making - Goodway Plc

TASK 1

Measuring weighted average cost of capital of Goodway Plc

To analyse the weighted average cost of capital there is need to have appropriate estimation of costs implemented in each business operations. However, it brings the appropriate information and details relevant with the debts and equity of the business which will be used in context with improving the capital structure of the firm (Pollanen and et.al., 2017). Similarly, to analyse the cost of capital of Goodway Plc there will be analysis based on various capital treatment as listed below:

Cost of preference share capital::

Cost of debt for 3% irredeemable loan stock

Cost of 9% redeemable loan stock:

Cost of 6% Unsecured loans

Bank loan cost:

Weighted average cost of capital:

Interpretation: In relation with measuring the weighted average cost of capital it can be said that there is need to have consideration of cost of equity, cost of debts which in turn will have the effective analysis over the cost of capital. Therefore, the weights of this capital stock of Goodway Plc is 640000000. The weighted cost of preferred shares is 0.3125, weighted cost of 6% loan stock is 0.21875, 9% loan stock as 0.2343 and 6% unsecured stock as 0.2343. However, the corporate tax has been charged over the weighted capital at the rate of 35%. It comprises with the weighted average cost of capital for 8.94%. Evermore, the outcomes are quite favourable and adequate for the development of the entity. Thus, the costs of equity and cost of debts are proper for the business. Moreover, in relation with the costs of debts which are comparatively higher than cost of equity.

TASK 2

Cost of capital as per managing director:

Interpretation: In relation with the managerial decision made by Shilpa Gohal on which she thinks that the costs of debts are needed to be much cheaper than the costs of equity. Therefore, in relation with such assumptions the calculations has been made which in turn will be helpful to the professionals as to have the appropriate determination of the facts However, the cost of equity has been estimated as 51.56% while the total costs of debts are 37.90%. To analyse the weighted average cost of capital, considering all the relevant costs which will be assistive and helpful to the business as to have the most appropriate and adequate analysis over the business operations. Thus, the WACC has been measured as 11.40% which states that the cheaper debts will be helpful in reducing the cost of capital. Therefore, to reduce the costs of capital there wis need to have rise in the costs of debts. Thus, it can be said that the firm is capable of making the payments to it shareholders and bring them the adequate return over their investments. Therefore, the analysis of various factors will be helpful and appropriate as to have development of company policies.

TASK 3

A. Measuring CAPM

To analyse required rate of return over the assets of business the concept Capital assets pricing model will be fruitful for such measurements. However, it will be accurate and effective as it considers the market risk of return, risk free rates and beta value of concerning firm. It enables the managerial professionals in decision making as well as making profitable changes in the asset valuation (Kaufmann, Wagner and Carter, 2017). Moreover, to value the assets of the organisation which will be helpful to the firm in terms of presenting the fruitful returns. Thus, in relation with the managerial decisions made by Mark Darcy the CAPM will be measured as follows:

Interpretation: On the basis of above analysis it has been determined here that the market risk of return is of 14% risk free rate as 5% on which the market premium will be measured by the professionals as 9%. Thus, it computed as deducting the risk free rate from market risk. Similarly, the beta rate of Goodway Plc is 0.78. Thus, after analysing all the factors the CAPM has been measured as 0.35%. Moreover, it can be said that, the assets of firm will be valued at 0.35%.

B. Measuring the WACC for Noggin Plc:

By considering the balance sheet and the capital structure of Noggin Plc. The following analysis will be based on various operations such as determining the costs of equity and debts which will be helpful in demonstrating the WACC measurements for business (Consigli, Kuhn and Brandimarte, 2017).

Cost of capital:

Debts:

WACC:

Interpretation: By considering various analysis and determination of the facts it can be said that the weight of all the capital stock of the firm is 4706000 the weight of equity has been determined as 0.4475, weighted costs of debts is 0.5524 while the costs of equity as 18.59% and the debts as 0.35%. Therefore, the taxes has been levied over the costs is of 35% which brings the favourable outcomes to business such as 17.69% of WACC. Thus, in relation with such outcomes it can be said that, the cost of equity are comparatively higher than the costs of debts. Thus, the costs of debts is on favourable instinct which demonstrates here that the firm is being capable of meeting its debts on the right time.

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