Corporate Finance Essay Example | Topics and Well Written Essays - 1000 words - 4

Corporate Finance - Essay Example The price of Woolworths Limited company share can be calculated by formula: P= D [1] (r-g) where D [1] is the next dividend= 81 (from expected growth using current growth rate of 14.51%). P is the stock= 81* 9.91-0.1451 giving as price of share at 793.39.Substituting the figures into the formula; Therefore, this is to mean that Woolworth limited company paid as compensation 6.3 to the market demand in exchange owning the assets, which have the risks of ownership. It is a widely used formula by most companies for assurance purpose, to those who buy shares of those particular companies for risk taking. A keen and a thoughtful look on the Woolworth limited company annual report is suggestive that they have massive risks. By natural law of commerce, the riskier the business or the company the higher the cost of debt. The company uses various bonds, and loans and other form of debts that in turn give insights the rate of being paid by company to use debt financing. The cost of debt is usually calculated by a simple multiplication of the credits before tax rate by one minus marginal tax. So in this segment borrowing of Woolworth will be considered in coming up with the cost of the debt of the company. Borrowing here are stated at amortized cost with the difference between the cost and redemption value recognized in a collected income over a period of borrowing. Consolidated cash flow statement of Woolworth limited company the amortization of borrowing costs was 3491.6 (Woolworth Limited Annual Report 2013, pg. 162)while the marginal tax for the company was in the range of 30 % (Woolworth Limited Annual Report 2013, pg. 48). Substituting into the formula; This are the overall cost for financing a company like Woolworth limited. The mode of financing usually plays a pivotal role in determining the cost of capital. Financing can be done in two ways to a company or a combination of both. The two modes