Reference no: EM131933991 , Length: word count:1500

Finance Assignment -

You have been appointed as an advisor to the finance department of a listed company of your choice. The management have asked you for advice on how best to estimate the firm's Weighted-Average Cost of Capital (WACC). The company has previously outsourced this function to external consultants, but now wish to have a rigorous system in place to estimate WACC internally. You should propose a methodology for estimating the firm's WACC based on best practice and Finance theory (i.e., the relevant academic literature).

Since the firm is relatively unlevered, management would like particularly detailed advice with regards to estimating the cost of equity capital (though advice should not be limited to this input of WACC). With respect to this, management would like an assessment of whether the CAPM method would be appropriate, as well as detailed advice on how best to estimate the beta of the firm's shares.

Working alone, you are required to prepare a written report addressing the company's management, and containing the following:

1. A brief outline of main uses for WACC, and what the implications may be of an inappropriately estimated WACC.

2. A detailed outline of your proposed methodology for estimating WACC, including:

• A justification for each methodological choice made.
• A summary of what raw data would be needed to apply the proposed methodology, and advice on how management may obtain them.

3. A critical review of the limitations of your proposed methodology, including advice on whether/when adjustments may need to be made.

You are encouraged to produce illustrative calculations of your methodology where possible, using real or hypothetical data. You are permitted to make reasonable assumptions where necessary.

Attachment:- Assignment File.rar