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Question - MTR Corporation Limited case study - You recently graduated from a company sponsored Master degree in Finance programme and the Chief Financial Officer of MTR Corporation Limited has asked you to take the findings of Stacey and Jim and write a report to him on how to estimate the appropriate cost of capital for MTRC long term investment decisions. The report should comprise but not limited to the following:
1. Compute the long-term cost of debt and analyse the financing side effects of gearing.
2. Compute the cost of equity using the perpetuity (Gordon constant) growth model and the capital asset pricing model. (28 marks)
3. In what circumstances do deferred tax classified as equity? (2 marks)
4. Compute the capital structure based on book value and market value
5. Compute the weighted average cost of capital for MTR Corporation Limited based on book value and market value weights.
6. If projects within MTR Corporation Limited are deemed to be at different levels of risk, advise on the appropriate cost of capital and provide the reasons behind this advice.
7. Evaluate the findings of Stacey and Jim in line with relevant finance theories.
Briefly explain why it is strange that the situation in Scenario 2 arose in the light of NZX Listing Rules
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