Corporate Finance - Qantas - Cost of Equity and Cost of Debt - Finance Assignment Help

Assignment Task:

Instructions: This group assignment deals with Cost of Capital and Corporate Investment Decisions. Completing this assignment, you need to use a financial media (such as Bloomberg online, Google Finance, Yahoo Finance, WSJ, and etc.). Attach a printout (as an appendix at the end of your submission) including every piece of information you obtain from the financial media in this assignment. 

Background: Qantas (ASX: QAN) is currently working on a 10?year upgrade plan with Airbus. The plan is trying to retire 5 existing aircrafts and purchase 10 new aircrafts in 2020. The new plane’s purchase price is $100 million AUD (per-plane price), and the old planes were purchased at $60 million AUD (per-plane price) 15 years ago. Both old and new planes can be used for 20 years. QAN is conducting a prime-cost depreciation to zero over 20 years life. If you are disposing the old planes now, the salvage value will be $5 million AUD. The management team believes that at the end of the first year of the project they could earn pre-tax revenues of $150 million, $250 million the following year, $350 million in the third year, $250 million from the fourth to the ninth year, and $150 million for the last year. The average corporate tax rate paid by QAN is 26%. 

Task: 1. Data Collection: Collect the following information for QAN from a legitimate financial media: beta, risk free rate, cost of debt, and capital structure information (debt and equity structure). Describe your data collection process in around 100-150 words, and compare the statistics for 

QAN with its peers (5-10 domestic and international peers) such as Virgin Australia and its industry average. 

2. Cost of Equity and Cost of Debt: Use Capital Asset Pricing Model to compute the required rate of return for QAN’s equity, and use QAN’s financial information to compute the required rate of return for QAN’s debt. ASX stock market expected returns can be calculated using the provided data. 

3. Cost of Capital: Use the capital structure information you obtain to compute the weighted cost of capital for QAN. Comment on your results in less than 50 words. 

4. Project Evaluation: Using the information in the background section, conduct a rigorous capital budgeting analysis and comment on the feasibility of Qantas’ the 10-year upgrade plan. Make sure to include your analysis on project cash flows for year 0 to year 10. Keep in mind, as there is no disposal of the airplanes in year 10 you do not need to deal with salvage value or gain/loss on sale for the new planes. 

Presentation: Presentation matters, and therefore you will be deducted points for poor presentation quality. I don’t need anything fancy, just a pdf or word file that is well organized, and easy to follow. Please avoid lengthy and unnecessary description, e.g., spend a paragraph discussing the definition of CAPM or WACC. You should produce print outs with question 1, and do not need to print anything for question 2 and 4 (if you have produced print outs for capital structure information in Q1 then you don’t need to produce print outs again for Q3). Remember to indicate which question you are answering. Once done, please upload your pdf or word file to the assignment submission folder. Good Luck! 

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