16655 Property Finance

Weighted average cost of capital (WACC) of Telus Corporation Minicase #2, MGT3040 The following problems are interrelated and involve the steps necessary to calculate the WACC for TELUS Corporation. In the appendix of this case, you can find a copy of the Annual Report filings made by TELUS Corporation. 1. Locate the book value of debt, the book value of equity. What is the average tax rate for TELUS Corporation? You wish to calculate the cost of equity for TELUS. A screenshot from finance.yahoo.com is available in th e appendix of this case f ile . You can also find the dividend history for TELUS in the appendix of this case f ile . Follow the steps below to compute the cost of equity for TELUS . 2. Locate the most recent price for TELUS, the market capitalization, the number of sha res outstanding, the beta, and compute the most recent five years annual dividend. What is the average dividend growth rate? Compute the cost of equity using Dividend Growth Model Approach. Year Total Dividend (Annual) Change (%) 2016 2015 201 4 2013 2012 - Average 3. A screenshot from bankofcanada.ca is available for TELUS in the appendix of this case f ile . Using the most recent T reasury B ill yields , a ssuming a 4 percent market risk premium, what is the cost of equity for TELUS using CAPM ? You now need to calculate the cost of debt for TELUS. In the bond market today, there are three TELUS's bonds trading in the market: Issuer Time To Maturity Par value Price Coupon Rate YTM Book Value (million) TELUS Corporation 28 YEAR S $ 100 $ 102.90 4.85% $ 580.14 TELUS Corporation 9 YEARS $ 100 $ 104.80 3.75% $ 6,005.12 TELUS Corporation 11 YEARS $ 100 $ 94.50 2.80% $ 4,596.74 4. Compute the YTM (yield to maturity) for each bond in the table above . What is the weighted average cost of debt for TELUS using the book value weights? 5. Now you can calculate the weighted average cost of capital for TELUS, using book value weights, given the tax rate computed in Question 1. Cost of Debt Cost of Equity WACC Dividend Growth Model Approach CAPM Approach Consolidated statements of income   and other comprehensive income Years ended December 31 (millions except per share amounts) Note 2015 2014 Operating Revenues Service   $ 11,590 $ 11,108 Equipment   840 819 Reven ues arising from contracts with customers   12,430 11,927 Other operating income 6 72 75   12,502 12,002 Operating Expenses Goods and services purchased   5,532 5,299 Employee benefits expense 7 2,708 2,487 Depreciation 16 1,475 1,423 Amortization of intangible assets 17 434 411   10,149 9,620 Operating Income 2,353 2,382 Financing costs 8 447 456 Income Before Income Taxes 1,906 1,926 Income taxes 9 524 501 Net Income 1,382 1,425 Other Comprehensive Income 10 Items that may subsequently be reclassified to income Change in unrealized fair value of derivatives designated as cash flow hedges   (4) 1 Foreign currency translation adjustment arising from translating financial   statements of foreign operations   25 10 Change in unrealized fair value of available -for-sale financial assets   – (4)   21 7 Item never subsequently reclassified to income Employee defined benefit plan re -measurements   445 (445)   466 (438) Comprehensive Income $   1,848 $      987 Net Income Per Common Share 11 Basic   $   2.29 $     2.31 Diluted   $   2.29 $     2.31 Total Weighted Average Common Shares Outstanding Basic   603 616 Diluted   604 618 The accompanying notes are an integral part of these consolidated financial statements. 112 • TELUS 2015 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated statements of financial position As at Decembe r 31 (millions) Note 2015 2014 Assets Current assets Cash and temporary investments, net   $    223 $        60 Accounts receivable 25(a) 1,428 1,483 Income and other taxes receivable   1 97 Inventories 25(a) 360 320 Prepaid expenses   213 199 Real estate joint venture advances 18(c) 66 – Current derivative assets 4(h) 40 27   2,331 2,186 Non -current assets Property, plant and equipment, net 16 9,736 9,123 Intangible assets, net 17 9,985 7,797 Goodwill, net 17 3,761 3,757 Other long -term assets 25(a) 593 354   24,075 21,031   $ 26,406 $ 23,217 Liabilities and Owners ’ Equity Current liabilities Short -term borrowings 19 $    100 $      100 Accounts payable and accrued liabilities 25(a) 1,990 2,019 Income and other taxes payable   108 2 Dividends payable 12 263 244 Advance billings and customer deposits 25(a) 760 753 Provisions 20 197 126 Current maturities of long -term debt 21 856 255 Current derivative liabilities 4(h) 2 –   4,276 3,499 Non -current liabilities Provisions 20 433 342 Long -term debt 21 11,182 9,055 Other long -term liabilities 25(a) 688 931 Deferred income taxes 9(b) 2,155 1,936   14,458 12,264 Liabilities   18,734 15,763 Owners ’ eq uity Common equity 22 7,672 7,454   $ 26,406 $ 23,217 Commitments and Contingent Liabilities 23 The accompanying notes are an integral part of these consolidated financial statements. Approved by the Directors: William A. MacK innon Director R.H. Auchinleck  Director TELUS 2015 ANNUAL REPORT • 113 Consolidated statements of changes in owners ’ equity Common equity Equity contributed Accumulated   Common Shares (Note 22) other   Number Share Contributed Retained comprehensive  (millions except number of Common Shares) Note of shares capital surplus earnings income Total Balance as at January 1, 2014   623,432,398 $ 5,296 $ 149 $ 2,539 $ 31 $ 8,015 Net income – – – 1,425 – 1,425 Other comprehensive income 10 – – – (445) 7 (438) Dividends 12 – – – (935) – (935) Share option award expense 13(a) – – 3 – – 3 Common Shares issued pursuant   to share option awa rd net -equity   settlement feature 13(b) 1,447,207 11 (11) – – – Normal course issuer bid purchase   of Common Shares   (15,855,171) (135) – (480) – (615) Liability for automatic share purchase   plan commitment pursuant to   normal course issuer bids for   Common Shares 22(b) Reversal of opening liability   – 18 – 57 – 75 Recognition of closing liability   – (15) – (60) – (75) Other   – – – (1) – (1) Balance as at December 3 1, 2014   609,024,434 $ 5,175 $ 141 $ 2,100 $ 38 $ 7,454 Balance as at January 1, 2015   609,024,434 $ 5,175 $ 141 $ 2,100 $ 38 $ 7,454 Net income   – – – 1,382 – 1,382 Other comprehensive income 10 – – – 445 21 466 Dividends 12 – – – (1,01 1) – (1,011) Share option award expense 13(a) – – 1 – – 1 Common Shares issued pursuant   to share option award net -equity   settlement feature 13(b) 885,783 7 (7) – – – Normal course issuer bid purchase   of Common S hares   (15,610,462) (133) – (502) – (635) Liability for automatic share purchase   plan commitment pursuant to   normal course issuer bids for   Common Shares 22(b) Reversal of opening liability   – 15 – 60 – 75 Recognition of closing liability   – (14) – (46) – (60) Balance as at December 31, 2015   594,299,755 $ 5,050 $ 135 $ 2,428 $ 59 $ 7,672 The accompanying notes are an integral part of these consolidated financial statements. 114 • TELUS 2015 ANNUAL REPORT CONSOLIDATED FINANCIAL STATEMENTS Consolidated statements of cash flows Years ended December 31 (millions) Note 2015 2014 Operating Activities Net income   $   1,382 $   1,425 Adjustments to r econcile net income to cash provided by operating activities: Depreciation and amortization   1,909 1,834 Deferred income taxes 9 68 188 Share -based compensation expense, net 13(a) (38) 74 Net employee defined benefit plans expense 14(b),(g) 118 87 Employer contributions to employee defined benefit plans   (94) (88) Other   (17) (49) Net change in non -cash operating working capital 25(b) 214 (64) Cash provided by operating activities   3,542 3,407 Investing Activities Cash payments for capital assets, excluding spectrum licences 25(b) (2,522) (2,373) Cash payments for spectrum licences   (2,048) (1,171) Cash payments for acquisitions and related investments 25(b) (10) (49) Real estate joint ventures advances and contribu tions 18(c) (50) (57) Real estate joint venture receipts 18(c) 98 4 Proceeds on dispositions   52 7 Other   3 (29) Cash used by investing activities   (4,477) (3,668) Financing Activities Dividends paid to holders of Common Shares 25(b) (992) (913) Purchase of Common Shares for cancellation 22(b), 25(b) (628) (612) Issuance and repayment of short -term borrowings 19 – (300) Long -term debt issued 21, 25(b) 9,219 7,273 Redemptions and repayment of long -term debt 21, 25(b) (6,486) (5,450) Other   (15) (13) Cash provided (used) by financing activities   1,098 (15) Cash Position Increase (decrease) in cash and temporary investments, net   163 (276) Cash and temporary investments, net, beginning of period   60 336 Cash and temporary investments, net, end of period   $    223 $        60 Supplemental Disclosure of Operating Cash Flows Interest paid 25(b) $   (458) $     (412) Interest received   $      24 $          2 Income tax es paid, net   $   (256) $     (464) The accompanying notes are an integral part of these consolidated financial statements. TELUS 2015 ANNUAL REPORT • 115 T.TO Key Statistics | Trans Canadian Fixed Pay GIF ­ Stock ­ Yahoo Finance Home Mail Flickr Tumblr News Sports Finance Celebrity Answers Groups Mobile MoreTry Yahoo Finance on Firefox » 1 Search for news, symbols or companies Search Sign in Mail Finance Home Yahoo Originals Personal Finance Tech Market Data Industry News My Screeners US Markets are closed S&P 500 Dow 30 Nasdaq Crude Oil Gold 2,202.94 19,023.87 5,386.35 47.90 1,214.80 4.76 (0.22%) 67.18 (0.35%) 17.4 9 (0.33%) ­0.34 (­0.70%) 2.10 (0.17%) TELUS Corporation (T.TO) Add to watchlist Quote Lookup Toronto ­ Toronto Delayed Price. Currency in CAD 41.95 ­0.03 (­0.07%) People also watch: At close: 3:59 PM EST BCE.TO RCI­B.TO TRP.TO ENB.TO TD.TO Summary Conversations Statistics Profile Financials Options Holders Historical Data Analysts Valuation Measures Market Cap (intraday) 5 24.79B Enterprise Value 3 36.74B Trailing P/E 17.76 Forward P/E 1 20.27 PEG Ratio (5 yr expected) 1 3.94 Price/Sales (ttm) 1.96 Price/Book (mrq) 2.99 Enterprise Value/Revenue 3 2.91 Enterprise Value/EBITDA 6 9.42 Financial Highlights Fiscal Year Fiscal Year Ends Dec 31, 2015 Most Recent Quarter (mrq) Sep 30, 2016 Profitability Profit Margin 11.11% Operating Margin (ttm) 20.34% Management Effectiveness Return on Assets (ttm) 5.98% Return on Equity (ttm) 17.95% Currency in CAD. Trading Information Stock Price History Beta 0.47 52­Week Change 3 1.43% S&P500 52 ­Week Change 3 5.35% 52 Week High 3 44.39 52 Week Low 3 35.51 50­Day Moving Average 3 42.59 200­Day Moving Average 3 42.40 Share Statistics Avg Vol (3 month) 3 858.73k Avg Vol (10 day) 3 1.08M Shares Outstanding 5 591M Float 590.12M % Held by Insiders 1 N/A % Held by Institutions 1 N/A Shares Short 3 18.64M Short Ratio 3 21.22 Short % of Float 3 0.00% Shares Short (prior month) 3 18.19M Dividends & Splits See Statistics Help for definitions of terms used. Abbreviation Guide: mrq = Most Recent Quarter ttm = Trailing Twelve Months yoy = Year Over Year lfy = Last Fiscal Year fye = Fiscal Year Ending 1 Data provided by Thomson Reuters. 2 Data provided by EDGAR Online. 3 Data derived from multiple sources or calculated by Yahoo Finance. 4 Data provided by Morningstar, Inc. 5 Shares outstanding is taken from the most recently filed quarterly or annual report and Market Cap is calculated using shares outstanding. 6 EBITDA is calculated by Capital IQ using methodology that may differ from that used by a company in its reporting. http://finance.yahoo.com/quote/T.TO/key­statistics?p=T.TO 1/2 T.T O Key Statistics | Trans Canadian Fixed Pay GIF ­ Stock ­ Yahoo Finance Inco e Statement Home Mail Flickr Tumb lr News Spo rts Finance Cele brity4 Answers 1.92 Gro ups Mob ile Mo reTry Yahoo Finance on Firefox » Forward Annual Dividend Rate 1 Revenue (ttm) 12.62B 4 Search 4.61% Sign in Mail Search for news, symbols Frward or Annual compan Diesvidend Yield Revenue Per Share (ttm) 21.25 Trailing Annual Dividend Rate 3 1.80 Finance Home Yahoo Originals Personal Finance Tech Market Data Industry News My Screeners Quarterly Revenue Growth (yoy) 2.70% Trailing An nual Dividend Yield 3 4.29% Gross Profit (ttm) N/A 5 Year Average Dividend Yield 4 3.79 EBITDA 3.9B Payout Ratio 4 75.95% Net Income Avi to Common (ttm) 1.4B Dividend Date 3 Jan 3, 2017 Diluted EPS (ttm) 2.36 Ex­Dividend Date 4 Sep 7, 2016 Quarte rly Earnings Growth (yoy) ­4.70% Compare Stock Brokers Last Split Factor (new per old) 2 2/1 Balance Sheet Last Split Date 3 Apr 17, 2013 Data Disclaimer Help Suggestions Privacy About Our Ads Terms Total Cash (mrq) 411M Follow Yahoo Finance Total Cash Per Share (mrq) 0.69 Total Debt (mrq) 12.55B Total D ebt/Equity (mrq) 151.38 Current Ratio (mrq) 0.57 Book Value Per Share (mrq) 14.01 Cash Flow Statement Operating Cash Flow (ttm) 3.34B Levered Free Cash Flow (ttm) 1.02B http://finance.yahoo.com/quote/T.TO/key­statistics?p =T.TO 2/2 Dividend history - Telus Record Date Payment Date Amount Q4 -16 9-Dec -16 03 -Jan -17 $0.48 Q3 -16 9-Sept -16 03 -Oct -16 $0.46 Q2 -16 10 -Jun -16 04 -Jul -16 $0.46 Q1 -16 11 -Mar -16 01 -Apr -16 $0.44 Q4 -15 11 -Dec -15 04 -Jan -16 $0.44 Q3 -15 10 -Sep -15 01-Oct -15 $0.42 Q2 -15 10 -Jun -1 02 -Jul -15 $0.42 Q1 -15 11 -Mar -15 01 -Apr -15 $0.40 Q4 -14 11 -Dec -14 02 -Jan -15 $0.40 Q3 -14 10 -Sep -14 01 -Oct -14 $0.38 Q2 -14 10 -Jun -14 02 -Jul -14 $0.38 Q1 -14 11 -Mar -14 01 -Apr -14 $0.36 Q4 -13 11 -Dec -13 02 -Jan -14 $0.36 Q3 -13 10 -Sep -13 01 -Oct -13 $0.34 Q2 -13 10 -Jun -13 02 -Jul -13 $0.34 Q1 -13 11 -Mar -13 01 -Apr -13 $0.32 Q4 -12 11 -Dec -12 02 -Jan -13 $0.32 Q3 -12 10 -Sep -12 01 -Oct -12 $0.305 Q2 -12 08 -Jun -12 03 -Jul -12 $0.305 Q1 -12 09 -Mar -12 02 -Apr -12 $0.29