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    Royal Mail Case

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    Over six years, Royal Mail increased the price of First-Class postage from 32 pence to 60 pence. The cost of capital is the return investors expect from alternative investments of similar risk. It is used to estimate the fair return for investors. Commonly, the cost of capital is estimated using a weighted average of the required returns of the various investor types, like debt holders and equity holders.

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    Royal Mail Case

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    df
    83 views5 pages
    Over six years, Royal Mail increased the price of First-Class postage from 32 pence to 60 pence. The cost of capital is the return investors expect from alternative investments of similar risk. It is used to estimate the fair return for investors. Commonly, the cost of capital is estimated using a weighted average of the required returns of the various investor types, like debt holders and equity holders.

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    Over six years, Royal Mail increased the price of First-Class postage from 32 pence to 60 pence. The cost of capital is the return investors expect from alternative investments of similar risk. It is used to estimate the fair return for investors. Commonly, the cost of capital is estimated using a weighted average of the required returns of the various investor types, like debt holders and equity holders.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    83 views5 pages

    Royal Mail Case

    Uploaded by

    df
    Over six years, Royal Mail increased the price of First-Class postage from 32 pence to 60 pence. The cost of capital is the return investors expect from alternative investments of similar risk. It is used to estimate the fair return for investors. Commonly, the cost of capital is estimated using a weighted average of the required returns of the various investor types, like debt holders and equity holders.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 5

    Over the next six years, Royal Mail responded by increasing the price of First-Class postage from 32 pence

    to 60 pence.

    The cost of capital was theoretically defined as the prevailing return that investors could earn on alternative investments of sim

    Determined by market forces

    Opportunity cost benchmark

    Business returns that were expected to exceed the cost of capital were considered value creating to investors since the expec

    Estimate of fair return for investors.

    To estimate the opportunity cost of total business capital, it was common to use a weighted average of the prevailing required

    Estimatec cost of capital: 3.828%


    32 pence to 60 pence.

    n alternative investments of similar risk.

    g to investors since the expected returns exceeded what investors could generate on their own with investments of similar risk.

    rage of the prevailing required return values for the various types of investors in the business, such as debt holders and equity holders.
    ments of similar risk.

    holders and equity holders.


    CAPM 5.32%

    Capital Sources Book Values (in millions of GBP)


    Current debt 290 6%
    Noncurrent debt 559 12%
    Equity 3846 82%

    Cost of debt 3.19%


    Current debt 0.90%
    Non current debt 4.38%
    Beta 0.65
    Risk premium 5.80%
    Private company ungearing and gearning beta

    Dividend yield ignores the future benefits


    she has ignored the capital appreciation part

    Non current loan 1187


    Equity 51100

    yeild to maturity 2.71


    Calculate IRR
    of total capital
    of total capital
    of total capital

    you estimate the costs


    debt is a very small part of total capital
    cost of debt--yeild to maturity--internal rate of return

    yield

    3.58 yeild to maturity

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