Cost Of Capital - Cost Of Equity - CAPM - Finance Assignment Help

Assignment Task

Overview-
This assignment will give you an opportunity to develop an understanding on the cost of capital. This is an individual assignment, where you have to do some data analysis, engage in critical discussion and produce a report. The main reason for the assignment to be done individually is to help you understand how to get meaningful insights from data, to stimulate critical discussion on the topic and to help develop the ability to work independently to complete a project.

Question:
You have been recently hired by Refresh, a private snacks and beverage company, based in Scotland. Refresh has been a profitable company and plans to start manufacture soft drinks in near future. The CEO of Refresh has asked you to work out the cost of capital for its company. Since the company is a privately-owned company, it is difficult to estimate the cost of capital for the company. You plan to use another company's data to come up with the cost of capital figure. Follow the steps below to allow you to estimate the cost of capital:
1. Select a beverage company which could be a suitable proxy company.
2. Download its most recent financial statement and look for its debt issues and its cost on debt. You need to find an indicative yield for its bonds. 
3. Use the information on the proxy company's bonds and weight of debt to find out the weight average cost of debt. Can you find out the market values of debt? If not, what assumptions are you making and what is the impact of those assumptions?
4. For estimating the cost of equity, you plan to use CAPM. Find out the beta of your proxy company. If you cannot get the beta of the company, you need to estimate it. To estimate the historical market risk premium, download monthly returns of a suitable market index for the past 5 years (Calculate the monthly returns, take the average and
multiply this by 12 to get the annualized historical return). Estimate the return of your proxy company's stock. Now get the risk-free rate by using rate for three-month
Treasury bills? With this information, find out the cost of equity. 
5. Use the market value for the equity of your proxy company to estimate the weighted cost of equity. 
6. Assume that the tax rate for your company is 25%. 
7. Calculate the cost of Capital for Refresh based on the information you have collected above. 
8. Critically assess the method you have used and the assumptions you have made in the process. What are the problems associated with your approach? Suggest some ways to improve the ways in which you can estimate the cost of capital. This part carries more weight in the marking scheme.

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