Posted: November 6th, 2015

WACC AND CAPM

WACC AND CAPM

Founded in 1924,Woolworths (ASX ticker: WOW) is now a household name and one of the largest food retailers in Australia and New Zealand. Woolworths’ large market capitalization puts it on the S&P/ASX50 list. It  operates in five divisions: Australian Food and Liquor, New Zealand Supermarkets,General Merchandise, Hotels, and Home lmprovement. It has around 200,000 employees and the Woolworths group services 29.4 million customers per week. Together with Coles,Woolworths captures the greatest market share in the supermarket industry in Australia. However, ALDI, ISA, and other supermarkets have stepped up the competition and challenged Woolworths’competitive advantage in recent years.

You are part of a team of young, bright consultants and financial analysts. Your team is assigned to complete an analysis and valuation report on Woolworths. Your task includes the following:

4. Calculate the Woolworths’ weighted average cost of capital (WACC). Use the Capital Asset Pricing Model (CAPM) to find the cost of equity. You may assume that the market value of debt is close to its book value.

Woolworths’2014-15 financial report will be released on 28 Aug 2015. It contains much of the information you need to complete most of the tasks above. You are examined on the corporate finance concepts, financial techniques used, and the reasoning behind your choices in working through the assignment. Use the mark allocation as a guide to the scope and depth of your analysis.

Useful resources/sites:

a. Woolworths group (WOW): www.woolworthslimited.com.au

b. Yahoo! Finance:au.finance.yahoo.com

c. The Australian Securities Exchange (ASX): www.asx.com.au

d. The Age: MMN.the age.com.au

e. The Reserve Bank of Australia (RBA): MMN.rba.gov.au

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