Since it is not easy to obtain credit spreads for individual companies, you have decided to...

 

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Since it is not easy to obtain credit spreads for individual companies, you have decided to use a traded index of credit default spreads in Australia, which is called iTraxx. See details below. http://thewire.fiig.com.au/article/2015/09/11/aussie-itraxx The most recent data can be found below. You may use the 'theoretical spread' of iTraxx Australia. The number is quoted in basis points. http://www.markit.com/markit.jsp?jsppage=indices.jsp a. (3 marks) Revise the cost of debt and WACC for your company using the credit spread from iTraxx. b. (7 marks) Considering the credit rating score of your company (or of a similar company), how would you present your estimate of WACC to the CFO? You must understand what kind of firms are represented in the iTraxx Australia. Refer to the websites above. Investment and financing (10 marks) Report your firm's investment in property, plant and equipment (PPE) for the past five years. (If you cannot find data for the past five years, please use whatever years of data available.) Compare the amount of PPE year-by-year with its external financing using debt and equity by presenting the numbers for each year. You can examine the cash flow statement as well as the balance sheet. However, remember that the cash flow statement records the flow of PPE investment or financing during the fiscal year while the balance sheet shows that outstanding amount of capital stock, debt and equity. Here, the question is to examine the flows each year. (5 points) Does the amount of PPE investment equal the amount of external financing? If not, why? Since it is not easy to obtain credit spreads for individual companies, you have decided to use a traded index of credit default spreads in Australia, which is called iTraxx. See details below. http://thewire.fiig.com.au/article/2015/09/11/aussie-itraxx The most recent data can be found below. You may use the 'theoretical spread' of iTraxx Australia. The number is quoted in basis points. http://www.markit.com/markit.jsp?jsppage=indices.jsp a. (3 marks) Revise the cost of debt and WACC for your company using the credit spread from iTraxx. b. (7 marks) Considering the credit rating score of your company (or of a similar company), how would you present your estimate of WACC to the CFO? You must understand what kind of firms are represented in the iTraxx Australia. Refer to the websites above. Investment and financing (10 marks) Report your firm's investment in property, plant and equipment (PPE) for the past five years. (If you cannot find data for the past five years, please use whatever years of data available.) Compare the amount of PPE year-by-year with its external financing using debt and equity by presenting the numbers for each year. You can examine the cash flow statement as well as the balance sheet. However, remember that the cash flow statement records the flow of PPE investment or financing during the fiscal year while the balance sheet shows that outstanding amount of capital stock, debt and equity. Here, the question is to examine the flows each year. (5 points) Does the amount of PPE investment equal the amount of external financing? If not, why?

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