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Corporate Finance- FNCE3000Case Study (20%)Week 6- Monday 2pmWord Count- 4296- excluding tablesBrighid Davies 15519342External studentShareholder analysisWho are the typical investors in this stockWho are the marginal investors in this stock?Risk return analysisWhat are the risks of this company? (Where is this risk coming from (market, firm, industry or currency)? How is the risk profile of the company changing?What return would you have earned investing in this company’s stock?How much would you have under or out-performed the market in the short term?In your view, how much of the performance can be attributed to management?Cost of capitalCalculate the company’s cost of equity using various methods (at least 2); showing your calculations and detailing the source of your dataCalculate the company’s cost of debt; showing your calculations and detailing assumptions and the source of your data.Calculate the company’s cost of capital; showing your calculations.1
1.0 Introduction32.0 Shareholder analysis 33.0 Risk Profile53.1 Return for Financial Year 2014/201574.0 Cost of Capital104.1 Cost of Equity114.1.1 Capital Asset Pricing Model114.1.2 Dividend Growth Model114.1.3 Evaluation and Comparison of Models114.2 Cost of Debt114.3 Weighted Average Cost of Capital114.4 Discussion of Weighted Average Cost of Capital125.0 Bibliography-136.0 Appendix 142
2.0IntroductionMedibank Private Limited is Australian’s largest health insurance provider, which is a listed company on the Australian Stock Exchange as MPL. Medibank Private Limited offers health insurance and other complementary services such as travel, life, pet, overseas student health cover and visitor & working visa holders cover. Medibank also provides other health services, which includes Healthdirect Australia, Nurse-On-Call and Healthline. These services were made available to Medibank through the 2009 acquisition of AHM (Australian Health Management), the 2010 acquisition of McKesson Asia- Pacific and the 2009 merger with HAS (Health Services Australia). A list of the subsidiary companies of Medibank Private includes;In1976, Medibank wasestablished by theHealth InsuranceCommission (Medicare), as a government owned private health insurer. It was originally establish to provide competition to for-profit health funds. The fund was establish to put pressure on other health funds to keep premiums at an appropriate level. In 2009, the Rudd government announced that they would make Medibank a for-profit company. This meant thatMedibank was obliged to pay taxes on any future income. On the 25th of March 2014, the Abbott Government prepared a $4 billion proposal for the privatisation of Medibank. On the 20thof October 2014, Medibank issued a Prospectus with details about the sale of shares to the public. On the 25thNovember 2014, Medibank was listed on the Australian Securities Exchange. It was the second largest float in ASX history.