Option 5

Objective

This project is to find the Economic Value Added (EVA) of Malaysian or Singapore listed companies. This is developed by Stern, Stewart & Co and used to measure firm performance.

Steps

1.You are to select five (5) industries for your study where each should have at least20 companies. You can choose companies from the Main Board and/or SecondBoard of the Bursa Malaysia or companies from Singapore Stock Exchange.

2.For each of the company you are to download from the Datastream International and arrive at the following information.

a.pretax cost of debt

b.after tax cost of debt

c.cost of preferred stock

d.cost of common equity

e.weighted average cost of capital

f.current market price of a security

g.market value of a firm's debt in its capital structure

h.market value of a firm's preferred stock in its capital structure

i.market value of a firm's common equity in its capital structure

j.riskless (risk-free) rate of return

k.expected return of market portfolio

lbeta of a company's stock

3.Calculate the company's WACC following the equation below:

WACC = (Proportion of debt in capital structure)(Marginal cost of debt)

+ (Proportion of preferred stock in capital structure)(Marginal cost of preferred stock)

+ (Proportion of common equity in capital structure)(Marginal cost of common equity)

4.To calculate the cost of equity, you may use CAPM method or the constant growth dividend approach.

5.To arrive at the EVA, use the following formula

EVA = (EBIT) (1-T) - (WACC x Invested Capital)

6.Rank the companies for each industry and provide the descriptive statistics such as mean, standard deviation, maximum and minimum.