Village Roadshows Ltd Cost of Capital

= 0.873
= 2.404%
= 4.393%
= 6.241%
= 3.794%
= 5.067%
Beta
The Raw Beta for Village Roadshows Ltd (VRL) was estimated by obtaining the slope of the
regression of returns on the stock against returns on ASX300 between 05-Mar-2000 and 05Feb-2015. Among the financial industry is very common to adjust Raw Betas because there
are empirical evidence that suggests that betas for most companies, over time, tend to move
towards the average beta. Bloombergs approach was used = 0.811 + (1 0.811)
0.33 = 0.873.
Risk Free Rate
Risk Free Rate (2.404%) was taken from the latest data of the Australian Commonwealth
Government 10 year bond (05-Feb-2015).
Market Risk Premium (MRP)
The Market Risk Premium (MRP) was calculated using the difference between arithmetic
average of the annualized monthly returns of ASX300 and 10 year bond yield in the period
between 5-Mar-2000 and 05-Feb-2015 where = 9.522% 5.129% = 4.393%.
Cost of Equity
The Cost of Equity was calculated using the CAPM model using the value of the parameter
showed before where = 2.404% + 0.873(4.393%) = 6.241% .
After-Tax Cost of Debt

The Cost of Debt was obtained by using Interest Expense to Debt ratio as the ratio estimates
the interest rate a company is paying on its debt. Based on the information from VRL 2014
annual report, total Debt (interest bearing loans and borrowings) was 480.87M while Net
26.06

Interest Expense was 26.06M. Using the book value of Debt, pre-tax = 480.87 = 5.42%.
Then we considered the marginal tax rate for the country that we found on Damodarans'
webpage (30%). Finally the Cost of Debt was = 5.42% (1 30%) = 3.794%.
The Value of Equity (521.31M) and Value of Debt (480.87M) were obtained from VRL 2014
annual report.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital (WACC) was calculated with the figures above
= 6.241% (

521.31
480.87
) + 3.794% (
) = 5.067%
1,002.18
1,002.18