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Telus's Case

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lujin liang

on 30 July 2014

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Transcript of Telus's Case

Telus: Cost of Capital
Hurdle Rate
Hurdle Rate
analyze whether a project is financially viable
make decision between multiple projects

Common Equity
- We (38.67%)
- cost of common equity (10.13%)
- Wd (60.9%)
- cost of debt (3.51%)
Preferred Share
- Wps (0.43%)
- cost of preferred share (6.1%)

Hurdle Rate (continued)
Alternatives considered:

Issue the new debt
- corporate bonds,
- AP & short-term commercial paper,
- mix of short- & long-debt

Financing equity (SEO)
- opposite effect on D/E
- more costly

Through Bank Loan
- shortcoming of Debt-financing
Capital structure
Thanks for Your Attention
Group 4
Zachary Burvill (100825418)
Samuel Del Solar (100815314)
Md Huda (100871064)
Sisi Li (100962341)
Yuting Wang (100962235)
Lujin Liang (100815141)
Nicholas Patience (100802994)

NPV Method
Takes discount rate changes into account
Takes into consideration “time value of money”
Excellent for complex projects

Difficult to determine the hurdle rate
Does not measure interest rates or profitability

IRR Method
Gives rate of return as result
Effective for short-term simple projects

Useless with non-conventional cash flows
Uses one single discount rate for all projects
Does not account for risk

A leading national telecommunications company in Canada
Founded by the government of Alberta in 1990
Provides a wide range of wireless, data, Internet protocol (IP), voice, television, entertainment and video services
$6.43 billion of annual revenue (2000)
13.1 million customer connections
Putting Customer First
1. Introduction

2. Hurdle Rate
- Capital Structure & WACC
- Alternative Consideration

3.Historical average & Current Market Yields

4. NPV VS. IRR Methods
Historical VS. Current Yield
Historical average yields:
arithmetic or geometric averages

current market yield :
forward-looking and base on current conditions
easy to obtain

Telus's capital structure consists of
both debt and equity
The Hurdle rate is the firm's weighted
average cost of capital
Current market yield are used to
estimate the cost of debt than historical
NPV approach is superior to the IRR
when analyzing projects
Full transcript