Calculate after-tax weighted average cost of capital

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Reference no: EM131038744 , Length: word count:1000

Task

This assessment task covers topics covered in week 1 to 10 and has been designed to ensure that you are engaging with the subject content on a regular basis.

Pacific Energy Limited (ASX: PEA) is an ASX-listed energy supply business. The businesses deliver low-cost ‘off-grid' power supply to the Australian resource sector and ‘grid-connected' renewable hydro power.

PEA owns and operates 22 power stations with a total power generation capacity approaching 237MW. These power stations utilise either gas, diesel, dual fuel or water to generate electricity for our long-term customers.

The Company's core business division Kalgoorlie Power Systems (KPS) has been delivering its resource sector clients, including some of the world's biggest mining companies, ‘off-grid' power supply solutions for in excess of 25 years.

i) Being part of the treasury team of Pacific Energy Limited, your first exercise is to categorize Pacific Energy's capital structure into debt and equity capital. Begin by going to the website https://www.asx.com.au/asx/research/company.do#!/PEA to obtain Pacific Energy Limited's 2015 Annual Report.

ii) Calculate after-tax Weighted Average Cost of Capital.

iii) Assuming Pacific Energy Limited's credit rating is AAA, what alternative capital structure would you recommend lowering the cost of capital to the company?

Show all your calculation and limit your report to 1,000 words.

Guidelines:
- You are to calculate cost of debt and cost of equity to work out Weighted Average Cost of Capital.
- To lower the cost of capital of the company, you could suggest an alternative debt and equity capital mix taking into account the company is AAA rated.
Rationale
This will provide an opportunity to apply the concepts in an authentic scenario that you may encounter in the workplace and also:
- be able to evaluate and explain the congruence of accounting, finance and treasury functions.

Verified Expert

This assignment contains the calculation of WACC for a publicly listed company Pacific Energy limited. The process adapted is identifying the capital structure for the company from annual reports and then calculating the relevant cost of each source. Finally, the WACC has been arrived at and recommendations have been made around various possible options for lower the current WACC.

Reference no: EM131038744

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