Cost of capital guide- CAPM calculations
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• You will have to either calculate or source for the beta of the company. You can try www.morningstar.com.au or www.reuters.com. If you are using the beta from an online source, you have to investigate the time period of their calculations and compare betas from various sources. • You can use the 10-year Australian government bond for the risk-free rate. • Your Rm must be the same as the previous section.
Include a table to show clearly the time frames of the variables used to calculate CAPM.
DGM calculations
All information needed to calculate Rd using the DGM can be found in the annual report; income statement and balance sheet section.
Use the following formulas:
D1 is the sum of the dividends (payment date) for the reporting period. Do not include any special dividends as it is a once-off occurrence. Do not include franking credits PO is the closing price of the share of the last reporting period. Use profit after tax for net income. Include the page number of the annual report where you have obtained the figures Always use numbers from the main Income Statement and Statement of Financial Position.
Always use numbers from the main Income Statement and Statement of Financial Position. Use statutory not underlying and do not use adjusted figures. If your company has many divisions/operations, you have to use the numbers of the main group. You may use the calculated EPS from the annual report, but check if they have used adjusted figures and note in your report what they have adjusted for. Make a note in your report that as the payments are 6 months apart, the numbers do not fit the DGM formula well. 3 Selection of Re calculation Identify if there had been major events that occurred that may have caused a huge fluctuation in volatility: this will affect Re through CAPM. Investigate if there had been a change in the dividend payout policy: this will affect Re through DGM. CAPM or DGM: which one do you feel is more accurate/appropriate and why? Your reasoning must be based on your identification of shareholders from the previous section. Use this to calculate the WACC. 1
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