Question
Your investment club is currently revising its investment portfolio, and one company that you have recommended for possible inclusion in the clubs portfolio is Select
Your investment club is currently revising its investment portfolio, and one company that you have recommended for possible inclusion in the clubs portfolio is Select Harvests Limited (ASX Code: SHV). Select Harvests Limited operates in the food products industry and is involved in the processing, packaging, marketing and distribution of edible nuts (particularly almonds), dried fruits, seeds and a range of natural health foods. A key indicator that your investment club uses for screening purposes is firm risk, and you plan to determine the risk of Select Harvests Limited by estimating its current overall weighted average cost of capital (WACC). Your investment club has a 5-year investment horizon. You have gathered the following company and market information to assist with this task:
Select Harvests Limiteds market value-based Statement of Financial Position as at March 7th 2014 is (in $AUD Thousands):
Assets | Liabilities and Shareholders Equity | ||
Cash | 8,939 | Bank overdraft | 1,873 |
Receivables | 42,142 | Trade creditors and accruals | 29,495 |
Inventories | 66,879 | Short-term debt facility | 39,000 |
Property, plant and equipment | 125,032 | Long-term unsecured notes | 47,250 |
Biological assets almond trees | 88,415 | Shareholders equity | 414,426 |
Intangible assets | 56,282 |
|
|
Other assets | 144,355 |
|
|
Total Assets | 532,044 | Total Liabilities and Equity | 532,044 |
Company information for Select Harvests Limited:
- Beta coefficient is currently 0.50
- Number of issued shares is 57,800,000
- Closing share price on March 7th 2014 is $7.17 (Market capitalisation = $414,426,000)
- Bank overdraft interest rate = 2.78% after-tax
- Short-term debt facility has a current interest rate = 5.07% before tax
- Unsecured notes have a before-tax floating interest rate = 180-day bank bill rate + 5.00% margin
- Corporate tax rate = 30.00%
Market information:
- 180-day bank bill rate = 2.66% per annum
- 5-year Government bond yield = 3.46% per annum
- 10-year Government bond yield = 4.20% per annum
- All Ordinaries Index average return over the last 10 years = 9.25% per annum
Based on the above information, determine the current weighted average cost of capital (WACC) for Select Harvests Limited
Your investment club is currently revising its investment portfolio, and one company that you have recommended for possible inclusion in the clubs portfolio is Select Harvests Limited (ASX Code: SHV). Select Harvests Limited operates in the food products industry and is involved in the processing, packaging, marketing and distribution of edible nuts (particularly almonds), dried fruits, seeds and a range of natural health foods. A key indicator that your investment club uses for screening purposes is firm risk, and you plan to determine the risk of Select Harvests Limited by estimating its current overall weighted average cost of capital (WACC). Your investment club has a 5-year investment horizon. You have gathered the following company and market information to assist with this task:
Select Harvests Limiteds market value-based Statement of Financial Position as at March 7th 2014 is (in $AUD Thousands):
Assets | Liabilities and Shareholders Equity | ||
Cash | 8,939 | Bank overdraft | 1,873 |
Receivables | 42,142 | Trade creditors and accruals | 29,495 |
Inventories | 66,879 | Short-term debt facility | 39,000 |
Property, plant and equipment | 125,032 | Long-term unsecured notes | 47,250 |
Biological assets almond trees | 88,415 | Shareholders equity | 414,426 |
Intangible assets | 56,282 |
|
|
Other assets | 144,355 |
|
|
Total Assets | 532,044 | Total Liabilities and Equity | 532,044 |
Company information for Select Harvests Limited:
- Beta coefficient is currently 0.50
- Number of issued shares is 57,800,000
- Closing share price on March 7th 2014 is $7.17 (Market capitalisation = $414,426,000)
- Bank overdraft interest rate = 2.78% after-tax
- Short-term debt facility has a current interest rate = 5.07% before tax
- Unsecured notes have a before-tax floating interest rate = 180-day bank bill rate + 5.00% margin
- Corporate tax rate = 30.00%
Market information:
- 180-day bank bill rate = 2.66% per annum
- 5-year Government bond yield = 3.46% per annum
- 10-year Government bond yield = 4.20% per annum
- All Ordinaries Index average return over the last 10 years = 9.25% per annum
Based on the above information, determine the current weighted average cost of capital (WACC) for Select Harvests Limited
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started