The formula is as follows WACC w e r e w d r d 1 t Whereby w e Weightof equity

The formula is as follows wacc w e r e w d r d 1 t

This preview shows page 17 - 20 out of 35 pages.

The formula is as follows: WACC = w e r e + w d r d ( 1 t ) Whereby w e = Weightof equity r e = Cost of Equity T c = CorporateTax Rate ( 24 ) w d = Weight of Debt r d = Cost of Debt 29 “Finance & Taxation,” MyGovernment, Accessed October 7, 2017,.
Image of page 17
The number of outstanding shares on 30 June 2017 was 7,759,030,137, 30 and the closing share price on 30 June 2017 was $1.42, as shown in Appendix B. By multiplying these figures, we can get the total value of equity. As for the total value of debt, it is 28,532,162,000. The following shows the weight of equity and debt, respectively: w e = 1.42 × 7,759,030,137 ( 1.42 × 7,759,030,137 ) + 28,532,162,000 = 0.28 w d = 28,532,162,000 ( 1.42 × 7,759,030,137 )+ 28,532,162,000 = 0.72 The WACC is to be derived using the cost of equity under the DGM method, where r e = 6.62 . Hence, the WACC is: WACC = 0.28 × 6.62 + 0.72 × 2.61 ( 1 24 ) ¿ 3.3 What this means is, for every RM1 that YTL Power raises from its shareholders or lenders, the company must pay them an average of RM0.03 in return. Hence, the lower the WACC, the lower the company’s cost would be to fund new projects. By identifying the cost of debt and equity, the company can then decide whether or not to utilize a cheaper financing source. In this case, as YTL Power has a cost of equity of 6.62% and a cost of debt of 2.61%, it can be deduced that the company can raise funds with lower cost if it decides to borrow from lenders as opposed to raising capital from investors. Given that borrowing costs less, YTL Power’s WACC would decrease as this would increase its debt to equity ratio. Thus, YTL Power 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.
Image of page 18
4.0 Financial Statement Analysis Financial statement analysis is performed to review and evaluate a company's past financial statements to get a better understanding about the company past performance and the financial health of a company. Furthermore, it can help us understand the fundamental of the company and help to determine whether a company is worth to invest or not (Investopedia n.d.). In the current section, this part will compare YTL’s ratios with its largest competitor’s which is Tenaga National Berhad (TNB). TNB were established in Year 1949 31 , TNB has a market capitalisation of RM90.397 32 billion and it is known as the main power supply in West Malaysia. 4.1 Ratio Analysis A ratio analysis is performing a quantitative analysis regarding the information in a company’s financial statements. In this report, the financial ratio that will be discussed are Return on Assets (ROA), Return on Equity (ROE), and the Du Pont System analysis for ROA. 31 Owler. N.d. “TNB Competitors, Revenue, Number of Employees, Funding and Acquisitions.” Owler. Accessed on May 16, 2018. .
Image of page 19
Image of page 20

You've reached the end of your free preview.

Want to read all 35 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture