Question
MTR Corporation Limited case study Questions You recently graduated from a company sponsored Master degree in Finance programme and the Chief Financial Officer of MTR
MTR Corporation Limited case study
Questions
You recently graduated from a company sponsored Master degree in Finance programme and the Chief Financial Officer of MTR Corporation Limited has asked you to take the findings of Stacey and Jim and write a report to him on how to estimate the appropriate cost of capital for MTRC long term investment decisions. The report should comprise but not limited to the following:
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Compute the long-term cost of debt and analyse the financing side effects of gearing.
(10 marks)
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Compute the cost of equity using the perpetuity (Gordon constant) growth model and the capital asset pricing model. (28 marks)
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In what circumstances do deferred tax classified as equity? (2 marks)
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Compute the capital structure based on book value and market value
(20 marks)
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Compute the weighted average cost of capital for MTR Corporation Limited based on book value and market value weights. (10 marks)
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If projects within MTR Corporation Limited are deemed to be at different levels of risk, advise on the appropriate cost of capital and provide the reasons behind this advice.
(10 marks)
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Evaluate the findings of Stacey and Jim in line with relevant finance theories.
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