Reference no: EM131830822
Corporate Finance Assignment
1. Company Perspective - Woodside Petroleum and Shell
Consider the sources below and answer the following questions-
Source 1: Annual Report - Annual Report 2016 DELIVERING VALUE GROWTH - Woodside Petroleum and Shell
a) Write a 300-word background on Woodside Petroleum Ltd briefly describing the industry in which the company operates in and its main areas of business. Identify one key opportunity and two key threats to the company from competitors or other factors in 2016-17.
b) Calculate the cash conversion cycle for Woodside Petroleum for the financial year 2016. How does this compare with the cash conversion cycle in 2015? Comment the company's working capital efficiency relatively to its industry peer.
c) What is one example of a short-term debt financing instrument and one example of a long term debt financing instrument? In 2016, did Woodside predominantly use short term debt or long term debt financing?
d) Consider the information below concerning a 2.25% p.a. coupon, semi-annual US$100 bond issued by Royal Dutch Shell (Shell) on 6/12/2012. Assume the maturity date of this bond is 6/12/2023.
i) If today is 6/12/2018, calculate the price of the bond today based on the above information.
ii) How does your figure compare to the price in the above source? Why is this bond selling below par?
e) Consider the two source below for Royal Dutch Shell:
Shell Shares Data: (in Euros)
Euro and USD conversion:
Assume the market returns to be 9% and the risk-free rate to be 1.25%. Assume also that shell has just paid an annual dividend of $1.41 and that dividends will grow at 5% for the foreseeable future. What is the current price of Shell A shares in euros based on the dividend discount model and the information above? What type of analysis have you used and would you purchase them today? Why?
2. Capital Budgeting
Answer the following questions with the aid of excel spreadsheets. You also need to answer the below questions in your word file and refer to your excel spreadsheets as supporting documents. Assume all figures are in USD.
Imagine that in 2016 Shell is evaluating whether to undertake a gas project in a country which is highly risky. The annual total incremental revenues for the gas project is $3,633,300,000. The total incremental costs project are 30% of the incremental revenues for this project. Assume that the incremental depreciation for the gas project is $889,200,000 per year. Assume that the free cash flows for the project will continue for 20 more years with the first cash flow occurring at the end of next year and that the initial investment in the project being made today. Assume that the initial outlay for this project is $27 billion USD. Incremental revenues will increase by 2% per year and all costs will decrease by 3% per year starting at the end of year 2 for the life of the project. Assume depreciation remains constant over 20 years. All values are in USD. Assume the tax rate is 30% over the 20 years.
a) Based on the above information and sources what are the free cash flows to the Shell's gas project?
b) Calculate the NPV for project using the below costs of capital and recommend whether at these two rates Shell should invest in the project.
a. A WACC (cost of capital) of 5.94%?
b. A WACC (cost of capital) of 8%?
Attachment:- Assignment File.rar
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