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Financial Management Policy

Final Project

WACC for the Year 2010-11 & 2011-12


Submitted To: Sir Muhammad Irfan
Khan Class Timing: Wednesday 18:30 To
21:00
Date: 4th-May-2016
Submitted By: Tahir Javed (24532)
Hafiz Sheikh Zain Ahmed (28533)

Introduction to WACC
WACC stands for weighted average cost of capital. It is that financial metric in which each
category of capital is proportionately weighted, by taking weighted average we can see that
how much company has to pay for every rupee/ dollar it finances. Companys assets are
financed by either debt or equity. More complex companys capital structure the more
laborious it is to calculate WACC. It is important for a company to know its weighted average
cost of capital as a way to gauge the expense of future funding.
A company looking to lower its WACC may decide to increase its use of cheaper financing
sources.

Methodology
1.1 For calculating the beta () it is necessary to use the historical stock values on variables
of study, therefore, KSE-100 index is used as the market portfolio representative. The
monthly closing prices of the companies in 2012 and 2013 have been taken from the KSE
and Business Recorder website. The slope function has been used on excel to calculate
the respective betas of both the companies, where Market Return of KSE was taken as
the independent variable and Stock Return was taken as the dependent variable.
1.2 To calculate the return on market portfolio of KSE-100 index, percentage change in
index closing value is taken. All the percentages are then added and divided by the total
number of observations to find the average monthly market rate of return (Rm). Since the
data is actual, the risk free rate has already been subtracted, therefore, it can also be
considered as Risk Premium.
1.3 Data has been collected from the respective companies websites, trading economics
website, KSE website and business recorder website.

1.4 Corporate tax rate in Pakistan in 2011 and 2012 was 35%.
1.5 The 1 year treasury rate is taken as the proxy for Risk Free Rate of Return (Rf) in
2011 is 13.272 and in 2012 is 11.25.

WACC Formula

Where, Beta () is the correlation of security which means it is the link of security with
market return. It is a measure of sensitivity of a share price to movement in the market
price. It measures systematic risk which is the risk inherent in the whole financial
system. Beta coefficient is an important input in capital asset pricing model to calculate
required rate of return on a stock. It is the slope of the security market line.
Kohinoor Energy ltd dont take any long term debt so, their cost of debt is zero and Rd
is also zero in 2011 and 2012 because they financing through current liabilities and
internal financing.
The interest per annum of Southern Electric Power Ltd is US Treasury rate +4%.

SOUTHERN ELECTRIC POWER


COMPANY LIMITED
20102011
WAC
C
20102011

DATE
30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May11
30-Jun11

SOUTHERN ELECTRIC POWER COMPANY


KSELTD
100 RETUR DATE
SOUTHERN
RETURN
CLOSIN N
G
10519.0
8.19
29813.0
-9
5
6.711
10013.3
2.04
110598.
1
5.84
4
3
11234.7
6.00
6
4
12022.4
7.01
6
1
12359.3
2.80
6
11289.2
-2
2
11809.5 8.659
4.60
4
9
12057.5
2.10
4
0
12123.1
0.54
5
4
12496.0
3.07
3
6

Rf

13.272%

Rm

2.238%

Beta

1.659

ELECTRIC
POWER

30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May11
30-Jun11

3.12
2.55
2.34
2.32
2.19
2.23
2.17
1.54
1.64
1.36
1.57
1.31

7.586
18.269
8.235
0.855
5.603
1.826
- 2.691
29.032
6.494
17.073
15.44
-1
16.561

LT.DEBT+EQUITY

2471399000

LONG TERM DEBT

1104641000

44.7%

EQUITY

1366758000

55.3%

Re

-5.028%

Rd

7.39%

Tax rate

35%

WACC

-0.634%

20112012
WAC
C
20112012
SOUTHERN ELECTRIC POWER COMPANY
LIMITED
DAT
E
29-Jul11
30-Aug11
30-Sep11
31-0ct11
30-Nov11
30-Dec11
31-Jan12
29-Feb12
30-Mar12
30-Apr12
31-May12
29-Jun12

KSE 100
CLOSING
12190.3
7
11070.5
8
11761.9
7
11868.8
8
11532.8
3
11347.6
8
11874.8
9
12877.8
8
13761.6
7
13990.3
8
11786.6
2
13801.4
1

Rf

11.25%

Rm

1.1704%

Beta

0.728

RETURN
-2.446
9.186
6.24
5
0.90
-9
-2.831
1.605
4.64
6
8.44
6
6.86
3
1.66
- 2
15.752
17.09
4

DAT
E
29-Jul11
30-Aug11
30-Sep11
31-0ct11
30-Nov11
30-Dec11
31-Jan12
29-Feb12
30-Mar12
30-Apr12
31-May12
29-Jun12

SOUTHERN
ELECTRIC
POWER

RETURN
1.21
0.92
0.86
0.67
0.69
0.7
0.83
0.91
1.66
1.13
1.26
1.23

- 7.634
23.967
- 6.522
22.093
2.98
5
1.44
9
18.57
19.63
9
82.41
8
31.928
11.50
42.381

LT.DEBT+EQUITY

2900992000

LONG TERM DEBT

1534234000

52.9%

EQUITY

1366758000

47.1%

Re

3.91%

Rd

5.97%

Tax

35%

WACC

3.894

SOUTHERN ELECTRIC POWER


LIMITED
2010-2012

DAT
E
30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May11
30-Jun11
29-Jul11
30-Aug11
30-Sep11
31-0ct11
30-Nov11
30-Dec11
31-Jan12
29-Feb12
30-Mar12
30-Apr12
31-May12
29-Jun12

CLOSI
NG
PRIC3.12

REALIZED RATE OF RETURN

1.5171

STANDARD DEVIATION

0.6628

COEFFICIENT OF VARIATION

0.4369

2.55
2.34
2.32
2.19
2.23
2.17
1.54
1.64
1.36
1.57
1.31
1.21
0.92
0.86
0.67
0.69
0.7
0.83
0.91
1.66
1.13
1.26
1.23

KOHINOOR ENERGY
LIMITED
WACC 20102011
20102011
KOHINOOR ENERGY LTD
DAT
E

RETURN

30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May-

KSE 100
CLOSING
10519.0
29813.0
5
10013.3
110598.
4
11234.7
6
12022.4
6
12359.3
6
11289.2
2
11809.5
4
12057.5
4
12123.1

8.19
-9
6.711
2.04
1
5.84
3
6.00
4
7.01
1
2.80
-2
8.659
4.60
9
2.10
0
0.54

30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May-

11
30-Jun11

5
12496.0
3

4
3.07
6

11
30-Jun11

Rf

13.272%

Rm

2.238%

Beta

0.559

DAT
E

KOHINOOR RETUR
N
ENERGY
LTD
25.5
14.35
024.2
5.098
23.2
4.132
21.9
19.6 - 5.603
8
10.137
21.7
10.67
8
19.1 -1
17.9 12.305
9
17.5
-5.812
2
16.9
-2.613
3.539
17.5
3.55
-0
5.714

16.5

LT.DEBT+EQUITY

169458600

LONG TERM DEBT

EQUITY

169458600

100%

Re

7.099%

Rd

0%

Tax rate

35%

WACC

7.099%

20112012
WAC
C
20112012

KOHINOOR ENERGY LTD


DATE

KSE 100

RETURN

CLOSING

DAT
E

KOHINOOR

RETURN

ENERGY LTD

29-Jul11
30-Aug-

12190.3
7
11070.5

2.4461
-

29-Jul11
30-Aug-

17.7
5
16.8

4.41
-2

11
30-Sep11
31-0ct-

8
11761.9
7
11868.8

9.1859
6.245
3
0.908

11
30-Sep11
31-0ct-

16.2
5
16.4

5.352
3.274
1.04

11
30-Nov11
30-Dec-

8
11532.8
3
11347.6

-9
2.8314
-

11
30-Nov11
30-Dec-

2
16.5

6
0.48
-7

11
31-Jan12
29-Feb-

8
11874.8
9
12877.8

1.6054
4.646
0
8.446

11
31-Jan12
29-Feb-

12
30-Mar12
30-Apr-

8
13761.6
7
13990.3

3
6.862
9
1.661

12
30-Mar12
30-Apr-

12
31-May12
29-Jun-

8
11786.6
2
13801.4

- 9
15.752
17.093

12
31-May12
29-Jun-

12

Rf
Rm
Beta

Re
Rd
Tax rate
WACC

11.25%
1.170%
0.450

15.7
7
14.6

4.424
6.912
46.79

8
21.5
5
22.2

83.10
-9

2
20.5
6
21.0

7.471
2.18
9
2.33

1
21.5

12

LT.DEBT+EQUITY
LONG TERM DEBT
EQUITY

2
16945860
00
0
16945860
00

6.712%
0.000%
35%
6.712%

0
100%

KOHINOOR ENERGY
LIMITED
2010-2012
DAT
E
30-Jul10
31-Aug10
30-Sep10
29-Oct10
30-Nov10
31-Dec10
31-Jan11
28-Feb11
31-Mar11
29-Apr11
31-May11
30-Jun11
29-Jul11
30-Aug11
30-Sep11
31-0ct11
30-Nov11
30-Dec11
31-Jan12
29-Feb12
30-Mar12
30-Apr12
31-May12
29-Jun12

CLOSING
PRICE
25.5
24.2
23.2
21.9
19.6
8
21.7
8
19.1
17.9
9
17.5
2
16.9
17.5
16.5
17.7
5
16.8
16.2
5
16.4
2
16.5
15.7
7
14.6
8
21.5
5
22.2
2
20.5
6
21.0
1
21.5

REALIZED RATE OF RETURN

19.283

STANDARD DEVIATION

2.911

COEFFICIENT OF VARIATION

0.151