What is the cost of capital for telams

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Reference no: EM131069402


Be it for Commerce or MBA studies or for projects in the workplace, business writing always focuses on Iwo things: practicality and precision. Business writers meet this demand, in part, by using common formats and templates for everyday business communication. Predictable formats, such as those used to frame memos, help writers organize their information and help readers anticipate the kinds of information included. These templates keep the logical structure of the document transparent, enabling reader and writer alike to access information efficiently. While memos may not be the most creative form of communication you'll encounter, they can be among the most efficient and practical communication tools you'll use.


Memos are brief Internal documents. They tend to be circulated to a limited number of people and are intended to offer the reader short updates, announcements, summaries, etc. Occasionally, memo contents am multi-faceted (a regular monthly update of miscellaneous information from Human Resources, for example), but most of the time, they address a single matter.


For this reason, the actual content of the memo is kept very brief, usually 1-2 pages in length. The standard format of memo indudes a headings section, often printed on company letterhead that outlines the date, recipient, writer, and subject, followed by the body of the memo. When writing the 'subject' line, try to be as preclse as possible. A subject line that simply says 'staff update' could refer to anything. On the other hand, one that reads °staffing changes, finance deparbnenf gives the reader a clearer idea of what Is to come.

The body of the memo follows the headings. Here, precision and clarity are crucial. The information contained must be concise and compete, outlining the purpose of the memo, the pertinent background or contextual details, and the action required In response. Try structuring your memo with these three sections in mind: purpose, details, and action. The opening end dosing sections of the memo-the purpose statement and the action statement-should stand as single paragraphs, 1-3 sentences in length. The purpose statement tells the reader why the memo Is being written. The action statement tells the reader what Is required or requested of him or her in response to the memo. The middle section outlines any necessary descriptive, contextualizing, or background details and may include several short paragraphs, billeted lists, and/or headings.

Memos may also include a supplement line (Indicating, in capital letters, who emote and in lower case letters, who formatted the letter) and. if necessary, an enclosure or attachment line Indicating the number of documents included with the mans.

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1-3 sentences stating the key issue discussed In the memo (the purpose statement).

A series of short paragraphs. eats, eta outlining any necessary background information, research summaries, assessments, recommendations, etc. This section may include headings, meted eats, etc. (the details section).

1-3 sentences outlining the desired response to the memo. Th6 statement could be as simple as V you have questions on tots matter, please contact me at filjamiapAigutlagabptlE20tif (the action statement).

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One further note: it is not common practice to sign memos. In most cases, a signature is redundant-the Isom' line provides the same information that a signature would. However, in some situations, signing or initiating the bottom of a memo can provide a personal touch. When in doubt, take your formatting cues from the memos you receive from your colleagues and supervisors.

Remember, these guidelines are merely conventions, not fixed structures that apply to at situations. As with all other writing. The content and purpose of your document will define its structure, as will the context for writing. If you are not sure how best to format your memo, look at how other stinger documents are structured. Take your cues horn your context Memos written by more experienced colleagues may help you figure out how to format your own.

Telarus Cost of Capital Exercise

You are a junior financial analyst at Telarus. You are asked by the CFO to calculate the cost of capital for your company in relation to an expansion project. Your task is to present your findings to mid-level managers who are involved with this project.

To complete this assignment, you need to prepare these two things. First, you will perform the calculations on the Excel spreadsheet to correctly present your analyses on the cost of capital for Telarus as well as the resulting NPV. You will get a hard copy of the case facts. To perform the Excel analyses, you can download the Telarus Cost of Capital Excel file from my Black Board Learn website and follow my guidance in class.

Second, you will write a one page or less memo which presents the answers to the following questions:

1) Explain the findings of your calculations on cost of capital and NPV which include basic questions such as what is cost of capital, NPV as well as who, why, where, when and how. In explaining about "how", - what is the process in which you calculated how.

2) What is the meaning of your findings on cost of capital and NPV?

3) What are the implications of your findings on cost of capital and NPV?

Remember, the purpose of this exercise is to give you an opportunity to practice business writing skills, essential to any manager.
Please refer to my handout on how to write memos i.e. Queens University. Leam and use this guidance especially on how to address your target audience.

For submission, you will hand in a hard copy of your analyses from Excel and a one page memo on the following class.

This case problem can best be done using an Excel spreadsheet.

This will give you more practice on the great skills you have gained from my Excel computer lab.

This scenario takes place in the Vice-President Finance office of Telarus, shortly after the New Year, 2015. Ray lames, CFO and his team are preparing their report to the Board of Directors concerning the proposed expansion of their wireless infrastructure in Western Canada. Cost of the expansion is estimated at 5156 million including all floatation costs. They estimate that the annual cash flow of the project is between S29 and $31.5 million (after taxes) for the life of the project. The probability of realizing the higher, $31 .5 annual cash flow, is about 50%. The project life is estimated to be 7 years. The finance team has the most current company financial statements as well as 10-year Canada Index and Telarus Stock information. Details on their current bond debt are also available.

i) What is the cost of capital for Telams?

ii) With the cost of capital, and the project cost of 156 million, what is the NPV and 1RR of this project?

Balance Sheet As Of December 31, 2014
($ millions)


Liabilities & Equity

$ millions

Total Current

$ 1,749.0

Total Current

$ 6,669.0

Capital Assets (Net)


Long-Term Debt*




Preferred Shares


Common Shareholders' Equity

Comm. Shares

$ 4,785.0

Retained Earnings


Total Equity


Total Assets

$ 16,415.0

Total Liabilities & Equity

$ 16,415.0

• Long-text debts are bonds

Income Statement for Year E dad December 31, 2014
($ millions)


$ 6,463

Cost of Goods Sold & Depreciation


Earnings Before Interest & Taxes


Interest Paid


Income Before Taxes




Net Income


Preferred Share Dividends


Table 1 Telarus Preferred Share and Historical Stock Index Data

Canada Index'

Canada return

Telarus Price Close

Telarus TR Close %

Dividend *TR Close on Canada Aggregate Index





Per Share Common shares
























































Telarus Bonds

Coupon Rate




Av. Maturity

15 years



Bank Prime Rate


Risk-Free 1-Year

% Return 0.0275

Bond Price


Project Cost

$156 million

After tax Cash Flows /Year

$29 to $31,5 million


Years (life of Project)



Further Suggestions:

• You will want to estimate the Cost of Equity, Re using both the Dividend Growth Model approach and the CAEM approach. To estimate Beta, refer to the method and procedure described in your Ross and Westerfield Text (8ed), "Calculating Bete. pg. 372-370 in Chapter 13.

• When calculating your total market capitalization (V-E*P-,D), also include your internal earnings (internal equity) M Equity, E.

Attachment:- Finance_Excel.xls

Reference no: EM131069402

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