Cyclone case study The Cyclone group operates in three sectors: the sale of commercial shipping equipment, shipping of goods by sea between mainland India and Sri Lanka (the group owns two container ships) and a small shipyard which oversees the careenage of most of the boats in Sri Lanka.

The three divisions are listed on the Mumbai Stock Exchange.

Equipment sales division Maritime shipping division Shipyard Market capitalisation 2,160 18,520 632 Shareholders'

equity 1,580 10,5120 8240 Net debt

(estimated value)

812 212 −1,356 Sales 22,210 23,724 701 EBIT 405 1,625 82 Net income 226 1,057 −24

βE observed 0.8 0.5 1.2

βD estimated 0.1 0 0.3 Tax rate 35% 35% 35%

What is your view of the financial health of this group (very simple financial analysis)?

The required return for a risk-free investment is around 6.5% (before tax) and the average required return for the market portfolio is 11%

(before tax). Calculate the overall cost of capital for this group.

AppendixLO1