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Assignment 3

The document provides an analysis of Telus Corporation's weighted average cost of capital (WACC), estimated at 5.84%, using the Capital Asset Pricing Model based on the company's 2021 financial data. Key financial metrics include $16.8 billion in sales, a net income of $1.7 billion, and a total debt of $17.3 billion. The findings indicate that Telus's WACC is reasonable given its low financial risk and strong market position, aligning with industry norms of 7% to 9%.

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9 views6 pages

Assignment 3

The document provides an analysis of Telus Corporation's weighted average cost of capital (WACC), estimated at 5.84%, using the Capital Asset Pricing Model based on the company's 2021 financial data. Key financial metrics include $16.8 billion in sales, a net income of $1.7 billion, and a total debt of $17.3 billion. The findings indicate that Telus's WACC is reasonable given its low financial risk and strong market position, aligning with industry norms of 7% to 9%.

Uploaded by

amuendi1
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 3

Student Name

Professor

Course

Date
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Executive summary

Telus Corporation, a significant Canadian telecommunications business, has a

weighted average the price of capital (WACC) estimated in this research. The WACC, which

measures the average rates of return demanded by all corporate investors—equity and debt—

is crucial. The WACC was projected using the Capital Asset Pricing Model, also known as

CAMP, to compute equity cost using the company's 2021 Annual Report fiscal information to

determine loan cost. The risk-free rate was computed using 10-year bond rates with a 6%

market risk premium.

Telus's determined WACC is 5.84%, which is reasonable given its low financial risk,

predictable revenue streams, and strong place in the marketplace. The calculations and

predictions used in the above investigation are detailed in the items that follow sections to

stay transparency and reviews.

The Main Findings

CAPM equity cost: 7.6%.

Debt cost pre-tax: 2.89%

After-tax debt cost: 2.17%

WACC: 5.84%

Telus's WACC projected at 5.84% is realistic and consistent with its financial position

and industry norms, according to the research. Telus's capital cost is fully studied using the

calculations along with assumptions.


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Financial Data from Telus 2021 Annual Report

In its 2021 Annual Report, Telus Limited reported $16.8 billion in sales as well as

$1.7 billion in net profits. The corporation has $17.3 billion in debt and $501 million in

interest (TELUS 2021 annual report, n.d.). Telus had an effective rate of taxation of 24.8%,

indicating its outstanding economic achievement and commitment toward

telecommunications expansion.

Key Financial Metrics

 Total Customer Connections: 16.9 million

 $16.8 billion operating revenue

 Billion-dollar net income

 Total debt: $17,328 Million

 $501 million interest expense

 Tax Effective: 24.8%

Market Information

Equity market cap: $36,300 million. 3.1% (average the 10-year Government about

Canada bond yields) was the risk-free rates. Market Risk Premium was 6%. According to

historical the price of shares data, anticipated Beta (β): 0.75 (TELUS 2021 annual report,

n.d.).

CAPM To Estimate the Cost of Equity

Calculated using the Formula= Re=Rf+β×(Rm−Rf)

Using the average 10-year Department of Canada bond yield as the risk-free rate (Rf),

the price for market risk (Rm - Rf) will be assumed to be 6%, and Telus's history performance

in shares is used to estimate the beta (β).

Hence,

Re =3.1%+0.75×6%
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=3.1%+4.5%

=7.6%

Cost of Debt Calculation

In the yearly financial accounts, interest costs and total debt are used in calculating

the pre-tax cost of debt. Applying the effective tax rate, then loan costs are determined after

taxes.

Calculate the pre-tax cost of debt using the formula:

Rd = Interest Expense/Total Debt

Hence,

Rd=501million/17,328million=2.89%

After-Tax Cost of Debt

Rdafter−tax=Rd×(1−T)

Rdafter−tax=2.89%×(1−0.248)

=2.89%×0.752

=2.17%

Calculation Of the Weighted Average Cost of Capital

Telus' WACC is expected to be 5.84%. This is modest compared to the telecoms

sector average of 7%–9%. Telus's predictable cash flows as well as minimal financial risk

make estimates reliable and industry-standard.

Formula;

WACC=(E/V×Re)+(D/V×Rdafter−tax)

E = Market Equity Value = $36,300 million.

The market value of debt is $17,328 million.

V = Total Capital Value = 36,300 + 17,328 = 53,628 million.


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WACC=(36,300/53,628 ×7.6%)+(17,328/53,628 ×2.17%)

= (0.677×7.6%)+(0.323×2.17%)

=5.14%+0.70%

=5.84%

Reasonability of the Estimate

Telus' anticipated WACC of 5.84% is acceptable compared to the marketplace average

of 7% to 9%. Telus's solid market position, reliable cash flows, and little financial risk

minimize its WACC. The beta and market risk surcharge assumptions are industry-standard.

Telus's expense for capital is accurately estimated via the WACC estimation, enabling

decision- making by stakeholders.


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Reference

TELUS 2021 annual report. (n.d.). TELUS. https://www.telus.com/en/about/investor-

relations/reports/annual-reports/2021?INTCMP=tcom_about_annual-reports_cont_to_2021-

annual-report

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