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The formula is as follows:WACC=were+wdrd(1−t)Wherebywe=Weightof equityre=Cost of EquityTc=CorporateTax Rate(24)wd=Weight of Debtrd=Cost of Debt29 “Finance & Taxation,” MyGovernment, Accessed October 7, 2017,.
The number of outstanding shares on 30 June 2017 was 7,759,030,137,30and theclosing share price on 30 June 2017 was $1.42, as shown in Appendix B. Bymultiplying these figures, we can get the total value of equity. As for the totalvalue of debt, it is 28,532,162,000. The following shows the weight of equity anddebt, respectively:we=1.42×7,759,030,137(1.42×7,759,030,137)+28,532,162,000=0.28wd=28,532,162,000(1.42×7,759,030,137)+28,532,162,000=0.72The WACC is to be derived using the cost of equity under the DGM method,where re=6.62. Hence, the WACC is:WACC=0.28×6.62+0.72×2.61(1−24)¿3.3What this means is, for every RM1 that YTL Power raises from its shareholders orlenders, the company must pay them an average of RM0.03 in return. Hence, thelower the WACC, the lower the company’s cost would be to fund new projects. Byidentifying the cost of debt and equity, the company can then decide whether ornot to utilize a cheaper financing source. In this case, as YTL Power has a cost ofequity of 6.62% and a cost of debt of 2.61%, it can be deduced that the companycan raise funds with lower cost if it decides to borrow from lenders as opposed toraising capital from investors. Given that borrowing costs less, YTL Power’sWACC would decrease as this would increase its debt to equity ratio. Thus, YTLPower would then pay less than RM0.03 for every RM1 that it raises. 30 “YTL Power Annual Report 2017,” YTL Power International Berhad, accessed April 21, 2018, al%20Berhad-AnnualReport2017.pdf.
4.0 Financial Statement AnalysisFinancial statement analysis is performed to review and evaluate a company's pastfinancial statements to get a better understanding about the company pastperformance and the financial health of a company. Furthermore, it can help usunderstand the fundamental of the company and help to determine whether a companyis worth to invest or not (Investopedia n.d.).In the current section, this part will compare YTL’s ratios with its largest competitor’swhich is Tenaga National Berhad (TNB).TNB were established in Year 194931, TNBhas a market capitalisation of RM90.39732billion and it is known as the main powersupply in West Malaysia.4.1 Ratio AnalysisA ratio analysis is performing a quantitative analysis regarding the information in acompany’s financial statements. In this report, the financial ratio that will be discussedare Return on Assets (ROA), Return on Equity (ROE), and the Du Pont Systemanalysis for ROA.31Owler. N.d. “TNB Competitors, Revenue, Number of Employees, Funding and Acquisitions.” Owler. Accessed on May 16, 2018. .