Executive Summary
The ongoing trade war between China and America represents a perfect opportunity for
Australian companies to expand in the Chinese market. The current report outlines outstanding
perspectives of Chinese wine market because of positive changes in alcohol consumption and low
level of competition. Considering its international experience and absence of critical problems,
Treasury Wine Estates (TWE) is a suitable proxy for business risks associated with Typhoon’s new
initiative. Using the Capital Asset Pricing Model (CAPM), the authors of the report calculated all
the parameters related to risk-return (equity beta, the rate of return on equity, WACC, and other
indicators). All calculations can be found in section 3 of this report alongside with data and
sampling justification. The results of the analysis demonstrate that TWE’s rates of return that can
be used for the firm’s debt and weighted average cost of capital (WACC) are suitable for entrance
into the Chinese wine market. However, Typhoon should not rely on TWE’s WACC when
evaluating division-level investments.
The current trade war between the United States and China will significantly limit the US share
of the Chinese market. The wine export market is the more vulnerable one as wine is included as
part of the US products that China has proposed a twenty-five percent tariff rate. The tariff and tax
rate in total exceeds ninety percent per bottle of wine. Industry players and analysts have
speculated that China might block US wines completely (Shen 2018, para. 1-2). As a joint report
by Vinexpo and IWSR (as cited in Wang 2017, para. 2) states, China is predicted to consume 94
million cases of wine, which equates to 72% of global wine growth. Therefore, the dispute between
the United States and China is creating a massive opportunity for Australian wine exports to China.
In this case, Porter’s Five Forces can be used to assess the attractiveness of the Australian
wine business in China and the potential of success in exporting to China. A scale of Low-MediumHigh was used as a measure of the strengths of each force.
The Threat of New Entry: Low
The Threat of competitive rivalry: Medium
The United States was ranked sixth as one of China’s top 10 wine importers by country,
and Australia was ranked second in 2017 (Wang 2017, p. 5&9). Existing rivalries have already
divided China’s wines market share. Therefore, it is difficult for new entrants to access distribution
channels. Which current competitors would be able to gain market share now becomes a key focus.
France is a strong candidate since it occupied 40% of China’s wine market, ranked top in 2017
(Wang 2017, p. 10). However, Australian wine, as a representative of the ‘New World’, is
continuing to boom and is expected to perform better with its political superiority of a Free Trade
Agreement with China. Tariffs will be reduced to zero in 2019, which will significantly enhance
the competitive position of Australian wines sales in China (Carney 2018, sec. 4).
The Threats from Substitutes: Low to Medium
The closest substitutes for wines are craft beer and Baijiu. However, “Ganbei (dry the glass)”
has no longer been the only context in Chinese drinking culture, since Chinese millennials became
the most important consumers of alcohol (Thibaud 2018, sec. 1&2). Market research firm
Euromonitor (as cited in Tan 2017, para. 3) claimed that Chinese consumers are drinking less and
prefer premium products with high quality and better taste. The changing of China’s drinking
habits creates advantages for the future of wines sales in the Chinese market.
The Bargaining Power of Buyers: Medium
The Bargaining Power of Suppliers: no Significant Influences in This Case
The switching costs for buyers are relatively low as they have plenty of choices of imported
wines. However, Australia’s reputation of high quality has increased faith in brands and may
translate into brand loyalty (Carney 2018, sec. 2).
Overall Assessment
In conclusion, the wine industry in China is assessed overall as highly attractive, and
Australian wines are competitive and can successfully be exported to China. The analysis identifies
that government policies (Free Trade Agreement) and a good reputation are the core competencies
of Australian wine sales in China.
Treasury Wine Estates (TWE), an international wine company, listed on the Australian
Securities Exchange (ASX) is a suitable proxy for the business risk of wine exports to China in
this case (ASX 2018). Treasury Wine Estates has made inroads and achievements in the Chinese
market, and at the same time, Treasury Wine Estates is facing the same challenges as other wine
sellers moving into China’s wine market.
Industry body Wine Australia claimed that by the end of March 2018, the total Australian
wine exports to China had a 51 percent increase to about $1.04 billion in the last 12 months
(Financial Review 2018a, para. 2). Treasury Wine Estates made a significant contribution to the
export success in China.
The top two most popular Australian wine brands in China are Penfolds and Rawsons
Retreat, both owned by Treasury Wine Estates. Wolf Blass, also owned by Treasury Wine Estates,
ranked fifth (Financial Review 2018a, para. 3-4).
On the other hand, Treasury Wine Estates is facing over-supply issues in China, which are
common problems faced by wine companies. And more notably, the supply glut is concentrated in
cheap products, including Rawson Retreat and Wolf Blass, which are mentioned above as best
sellers. To clear out inventory, distributors had to offer discounts and bundle cheaper products with
premium labels. Although the taxes and shipping costs are high, the price of Rawson Retreat is
lower in the mainland than in Australia (Financial Review 2018c, para. 1-3). A Chinese distributor
who did not want to be named (as cited in Financial Review 2018c, para. 4) said that Treasury
Wine Estates is “heading for disaster”.
Furthermore, Treasury Wine Estates has been affected by counterfeit liquor in China
market. More than 50,000 fake Penfolds wine bottles were exposed this year (Financial Review
2018b, para. 1). China’s weak protection of brand and property rights has confronted the
international business community for a long time. Copycats take advantages of imperfect laws and
inadequate enforcement. Fakes of famous brands are common in China. Therefore, companies who
are pushing into the Chinese market need to place high importance on counterfeit liquor problem,
including Typhoon Group Ltd. Treasury Wine Estates is strengthening the investigations and
carrying out enforcement against counterfeit liquor after the fake Penfolds case. The company is
establishing a professional investigation team and working hand in glove with police and other
Chinese authorities (Financial Review 2018b, para.8-9). TWE (as cited in Financial Review 2018b,
para.11) also suggests consumers buy its products through official channels. Typhoon company
can take advice from Treasury Wine Estates about preventing the sale of counterfeit.
The challenges it is facing are typical and severe in the process of expanding into the Chinese
market, that are non-negligible factors regarding business risk analysis. Overall, the achievements
that Treasury Wine Estates have gained and the challenges it is facing in China both have reference
values for Typhoon company. Therefore, Treasury Wine Estates is a suitable proxy for the business
risk of wines.
3 Risk and Return – CAPM Approach
Introduced by Sharpe (1964), Capital Asset Pricing Model (CAPM) provides a way to examine
the relationship between systematic risk and expected return for stock under the assumption that
all unsystematic risk could be diversified away.
3.1 Selection of data, sampling horizon and interval
As presented by Figure (Market price table), a monthly sequence of adjusted closing stock prices
of TWE from 30th June 2013 to 30th June 2018 is obtained through Morningstar DatAnalysis
Premium (2018). To further objectively measure the return, TWE’s adjusted closing price should
be applied, which consists of stock’s closing price and corporate actions including dividend
distributions, stock splits and right offerings (Li & Li 2012). Considering that TWE entered ASX
in 2011, a 5-year historical horizon is intercepted to avoid potential biases when estimating beta
due to the price volatility during the initial years listed on ASX. Additionally, Eubank and Zumwalt
(1979) stated that changes could be more likely to incur in the managerial strategies and business
scale over a long period and could substantially lead to an inaccurate or irrelevant beta, which is
regarded as another reason for shortening the horizon period to 5 year. Meanwhile, beta also varies
sensitively depending upon various interval lengths (Brailsford & Josev 1997). The chosen
monthly statistic on return appropriately reflects one-month summary of price fluctuation, which
capably eliminates the amount of noise in data compared to daily return and also ensures the
efficiency of beta estimation (Eubank & Zumwalt 1979).
3.2 Market Index
S&P/ASX 200 Accumulation Index is applied as marker index (Figure: market price), since TWE
has been publicly listed in ASX 200. As a vital indicator of Australian equity performance
benchmark, ASX 200 could be regarded as highly persuasive to analysis the risk and return of
TWE compared with other indexes (Zhao, Schmidt & Terry 2016). Meanwhile, the selection
sampling horizon and interval of ASX 200 would be consistent with the selection of TWE for
effective measurement.
3.3 Rate of Return and risk 做 variance 吗????
Rate of stock return is calculated as (Titman, Keown & Martin 2014):
Monthly
Rate of Return of TWE and
ASX 200 is thus calculated as
𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛 =
𝐴𝑑𝑗.𝑃𝑛+1 −𝐴𝑑𝑗.𝑃𝑛
𝐴𝑑𝑗.𝑃𝑛
The monthly return calculation results of TWE and ASX 200 are exhibited in Figure: market price.
Adjusting Closing Price consists of the original stock price and the dividend distribution, as
justified in 3.1. Therefore, average monthly return rates of TWE and ASX 200 can be computed
as Arithmetic Mean across the 5-year period and further multiply by 12 respectively to obtain the
annual return rates, which are 0.3260231 and 0.049564428.
3.4 Beta Calculation
Bukvic, Kantor and Buljubasicc (2009) concluded that risk premium of one stock is regarded as
proportional to the risk premium of market. For the estimation of the systematic risk on stock, beta
coefficient is commonly applied (Milionis 2011).
Beta of stock is calculated as the formula (Titman, Keown & Martin 2014):
𝛽=
covariance (Xt, Yt )
variance(Xt )
While in order to precisely specify the relationship between the excess return of corporation stock
and market index, regression model is constructed in beta calculation for a significance test of
estimates (Milionis 2011). As presented in Figure (Regression Table), monthly return rate of
TWE’s stock is inputted into the Y-value as dependent variable, and the monthly market return is
entered into X-value imputation as independent variable. Hence the beta coefficient could be
intercepted as the slope of the equation at 0.75786179, demonstrating that TWE’s stock is regarded
as less volatility to ASX200 market index (Milionis 2011).
As indicated by Figure (Pure play method ), leverage difference between Typhoon and TWE’s
capital structure can be adjusted by Pure Play approach, which is a menthod to measure the cost
of equity capital of private company through examining the beta coefficient of other comparable
public traded company (Fuller & Kerr 1981).
In order to remove the financial risk from TWE’s beta, unlevered beta can be determined with
TWE’s capital structure as (Titman, Keown & Martin 2014):
Then the adjusted
beta could be estimated with the new
unlevered beta calculated and Typhoon’s capital structure as (Titman, Keown & Martin 2014):
According to
Australian Taxation Office
2018), corporate tax rate in Australian is assumed as 30%.
3.5 Risk free Rate
Risk free rate of return is regarded as another essential determinant of CAPM, under the
assumption that investors can lend or borrow at risk-free rate (Warren 2008). Since little risk of
default exists in government bonds comparing to corporate bonds, thus risk-free rate has been
commonly assumed as government bond rate (Park 2012). In considering that Typhoon’s capital
structure involves a 60% 10-year corporate bond, 10 years could be expected for financing on the
current project as anticipated (Park 2012). According to Bloomberg (2018), the risk free rate could
be referred to the government bond yield of 10 years at 2.72%.
3.6 CAPM imputation
According to Titman, Keown and Martin (2014), expected return of one stock could be determined
by
𝐸(𝑅𝑖 ) = 𝑅𝑓 + 𝛽 [𝐸(𝑅𝑚 ) − 𝑅𝑓 ]
To measure an annual expected return, determinants including Risk-free rate and Return rate of
market applied within CAPM should be consistent in annual frequency.
Imputing all data of determinants into the formula, the annual expected return can be calculated as
5.6743% (Figure CAPM).
4 Cost of Debt
As another component that constitutes capital structure, cost of debt effectively measures an
overall rate on its debt financing. In addition, the measurement further capably gives creditors and
potential investors a view on the corporation’s risk level regarding both financing risk and
operation risk over the market (Barnea, Haugen & Senbet 1981). To determine the cost of debt,
Miles and Ezzell (1980) proposed a way on estimation:
𝑹𝒅 = 𝑹𝒇 + 𝒓𝒊𝒔𝒌 𝒑𝒓𝒆𝒎𝒊𝒖𝒎
Considering the potential of default risk incurring, debt investors will always demand a
measurement on return involving a premium on risk with risk free rate (Schaefer & Strebulaev
2008). The premium could evaluate the further return risk that an investment would be
anticipated to yield in excess and thus acts as compensation on additional default risk for
investors (Longstaff, Mithal & Neis 2005). As a result, the risk premium is regarded as another
essential determinants of cost of debt in addition to risk free rate.
As justified in Section 3.5 Risk-free rate, the risk-free rate is referred to a 10-year government
bond yield at 2.72% (Morningstar 2018), which aims to keep consistent with the rate CAPM
applied.
To further measure the risk premium, yield spread is specified as the yield differences between
the traded debt securities and the government bonds (Longstaff, Mithal & Neis 2005). Since
bond issuers would have to pay the interest rate matching the credit migration risk, thus
corporate bond is commonly rated depending on its potential default risk (Tillich & Ferger
2015). Assuming that the debt securities issued are A-rated, it implies that the bond securities are
subject to lower credit risk and lower yields (Kisgen, D.J., 2006, p. 1037). Therefore, the credit
spread of A-rated corporate bonds in 2018 could be reasonably obtained at 0.99% (Damodaran
2018).
Accordingly, the required return of debt equals to 3.71% by adding up the two determinants, which
states that its debt funding is expected to be acquired by issuers at around 3.71%.
5
The weighted average cost of capital (WACC) refers to the rate of return that an
organisation is bound to pay all its various investor. The value calculated for capital budgeting is
under perfect market. Under this circumstance, capital structure does not affect the result of WACC.
The Modigliani-miller theorem (MM theorem) has raised the concept of “Perfect market” (VelezPareia elt. 2009, pp. 104-105). A perfect market condition is under perfect and complete
information, homogeneous expectations, business risk, perpetual no-growth cash flows and no
taxes exists (Modigliani & Miller, 1958). Assume the capital markets are perfect. The market value
of levered cash flow is equal to the market value of unlevered cash flow plus the tax shield on
interest payments. (Miles & Ezzell, 1980, pp. 727-728). According to Miles & Ezzell analysis, the
value of the levered cash flow can be determined by the unlevered component discounting at a
constant rate (Miles & Ezzell, 1980, pp. 727-728) which is equal to the ‘textbook approach’ WACC
equation:
𝐷
𝐸
WACC (without taxes) = 𝑅 d× 𝐷+𝐸 + 𝑅e× 𝐷+𝐸 (Velez-Pareia elt.
2009, pp. 106)
However, in real life environment, the market is imperfection because of corporate taxes
exist. Under MM theorem proposition II, no matter how well the corporate operation they paid
corporate taxes and taxes will affect the total value of the firms (Velez-Pareia elt. 2009, pp. 104105). Assume the firm has sufficient taxable income and an interest tax shields will appear and
can be used immediately when interest is paid as a deducted from the firm’s taxable amount (Myers
& Ruback, 1987). The cost of debt is multiplied by the tax shield (1-T) in order to adjust the levered
firm value by discounting the unlevered cash flows (Koziol. C, pp. 656). Therefore, WACC after
taxes can be calculated as:
𝐷
WACC (after taxes) = 𝑅d× (1 − 𝑇) × 𝐷+𝐸 +
𝐸
𝑅 e× 𝐷+𝐸 (Velez-Pareia elt. 2009, pp. 109)
By estimate WACC in this report will rely on Treasury Wine Estate and markets’ 5 years
data collected from 30/06/2013 to 30/06/2018. The first element is cost of debt Rd calculated by
Rd = Rf + risk premium. According to part 4 in the report, the yield spread for credit A-rate
corporate bond is 0.99% (Damodaran, 2018) and the risk-free rate for 10-year government bond
rate is 2.72% (Morningstar, 2018). Therefore, the Cost of Debt is equal to 3.71%. The second
element cost of equity Re is calculated using the Capital Asset Pricing Model (CAPM) and the
formula provides by the model is E (Re) = Rf + β [E (Rm) - Rf ]. According to part 3 in the report,
the annual expected return is 5.6743%.
The third element is to determine the weight of debt and equity for relative proportion, with
regard to the capital-structure weights, in this case scenario the Treasury Wine Estate financial
statements as at 30th June 2018 provide the following information.
For the debt, assume the borrowings in the Treasury Wine Estate balance sheet amounting
to the market value of debt that is equal to $875.3m (Treasury Wine Estate, 2018, pp.65) and
represent the total debts utilized to calculate the WACC. The equity is representing the ordinary
share and the market value of equity is calculate by the number of outstanding ordinary shares
multiplies the market price of each shares. Treasury Wine Estate has 718,663,546 authorised fully
paid ordinary shares on issue (Treasury Wine Estate, 2018, pp.119) and the market share price for
Treasury Wine Estate on 29th June 2018 is $17.39 (Morningstar.com.au, 2018). Therefore, the
market value of equity is $12,497,559,064.94.
Australia companies have a full imputation tax system from July 1, 1987
(R.R.Officer, 1994, pp.2). Under imputation tax system, shareholders dividend
received from the company is attached a franking credit. Franking credit is
when an investor receives dividend from the corporate, a ‘withholding tax
amount’ may be attached because the company has had paid taxed at the company
level (R.R.Officer, 1994, pp.2).
Generally speaking, Imputation tax system
avoid double taxation on dividends paid. The imputation tax system provides
the subsidy for the firm’s payment on returns to equity via distribution
credit and subsidy from deduct the interest payment on the cost of debt
(R.R.Officer, 1994, pp.2). The dividend imputation tax system firm’s
weighted-average cost of capital is given as:
𝐷
1−𝑇
𝐸
WACC= 𝑅 d× (1 − 𝑇) × 𝐷+𝐸 + 𝑅 e× 1−𝑇(1−𝛾) × 𝐷+𝐸 (R.R.Officer, 1994, pp. 6).
Where 𝛾 is represents as the value of imputation tax credit.
According to Treasury Wine Estates Annual Report, it stated that the dividend is 100%
fully franked therefore the imputation tax credit is equal to 1, and the company tax rates in Australia
is 30%. After putting all the data into the WACC equation, Treasury Wine Estates weightedaverage cost of capital is equal to 3.882%.
WACC is a significant tool relevant in capital budgeting for making investment decisions,
only when the internal rate of return on an investing project is exceed the WACC rate, this project
can be acceptable otherwise the project should be rejected.
The main objective in financial management is to maximizing wealth in
capital budgeting decisions. Capital budgeting should account the effects of
the investment decision and also the effects of the financing decisions (Miles
& Ezzell, 1980, pp719). According to Miles & Ezzeel, the ‘textbook approach’
implication of the MM theorem which is the market value of levered cash flow
is equal to the market value of unlevered cash flow plus the tax shield on
interest payments (Miles & Ezzell, 1980, pp. 727-728).
However, if Typhoon Group Ltd using the WACC rate of the company
Treasury Wine Estate, which calculate under the ‘textbook approach’ is
should be attributed into two factors: First, in capital budgeting as the rate
for calculating the net present value of a similar project that is existing in
the company, the project risk is similar to the average level of risk of the
firm’s existing project, the cost of debt and equity can be observed from the
market value to calculate the market value of rates of return on the
corporate’s debt and equity securities. Second, the financing decision and
investing decision should be separately in Typhoon Group because the single
discount rate not only affect the operating risk but also affect the financing
policy (Miles & Ezzell, 1980, pp. 727-728).
According to Kruger, Landier and Thesmar (2015), in the real-life practices most of the
firm use only single discount rate valuating all the investment projects which result failure to
determine the project-specific risk particularly when making the decision on different project and
they called it as a ‘WACC fallacy’. The evidence suggest that it will overestimate the value on a
high-risk project and underestimated the low-risk project. By compute discount rate most company
determine by CAPM model and the beta as the fundamental risk. The relative risk of several
division with different risk level should measure by the difference between the specific project
beta and the company beta. And the test also proves that there is a significant positive relationship
between division-level investment and relative risk. Therefore, when determine the discount rate
on division-level investment should calculate the industry beta rather than firm’s core division beta.
If manager use a wrong beta to value the net present value of an acquisition is value destroying
and the CAPM model fails to predict the stock return (Kruger, Landier and Thesmar, 2015,
pp.1255).
Moreover, Typhoon Group Ltd should not use the WACC from Treasury Wine Estate to
evaluate the NPV of a different project since the risk may differ. If Typhoon Group Ltd has several
divisions with different risk level; the discount rate use to evaluation individual investment project
should be different than the WACC.
Conclusion
The current Chinese-American trade dispute opens a number of possibilities for Australian
companies in general and Typhoon Group Ltd. in particular. For its entrance into the Chinese
market, wine is the perfect product because of extensive growth of the local wine industry. Among
all companies listed in ASX, Treasury Wine Estates (TWE) is the most suitable proxy for risks
associated with investments in wine selling since the company has an international experience and
stable financial indicators, such as equity beta, the rate of return on equity, and WACC. Thus, the
risk-return ratio can be considered as suitable for Typhoon. However, the theoretical basis in the
form of CAPM makes these indicators irrelevant for the real-life assessment of more targeted
investments. Thus, Typhon management is advised to treat the company’s WACC with caution
when it comes to individual investment projects.
Reference List
Asx.com.au, 2018, viewed 15 October 2018, https://www.asx.com.au/asx/share-priceresearch/company/TWE/details
Carney, M 2018, ‘'It's a big market': How Australians are helping China become the world's
biggest wine maker’, ABC News, viewed 13 October 2018, http://www.abc.net.au/news/2018-1001/australians-helping-china-become-worlds-biggest-wine-maker/10324624
Financial Review 2018a, ‘Australia wine exports to China soar through $1 billion and Treasury
Wine rejoices’, viewed 13 October 2018, https://www.afr.com/business/agriculture/treasurywine-estates-believers-buoyed-by-china-export-boom-20180415-h0yt49
Financial Review 2018b, ‘Chinese police seize 50,000 bottles of fake Penfolds’, viewed 13
October 2018, https://www.afr.com/news/world/asia/chinese-police-seize-50000-bottles-of-fakepenfolds-20180327-h0y19c
Financial Review 2018c, ‘Treasury Wine Estates facing China glut’, viewed 13 October 2018,
https://www.afr.com/business/retail/fmcg/treasury-wine-estates-facing-china-glut-20180516h104xz
Shen, W 2018, ‘Tariffs will drive US wines out of Chinese market: analysts’, Global Times,
viewed 13 October 2018, http://www.globaltimes.cn/content/1115337.shtml
Tan, H 2017, ‘China's drinking habits are changing — and that's a big opportunity for beverage
makers’, CNBC, viewed 13 October 2018, https://www.cnbc.com/2017/12/28/beverage-makerschinese-are-drinking-craft-beer-wine-baijiu.html
Thibaud 2018, ‘Understanding drinking culture in China - Daxue Consulting’, viewed 15
October 2018, http://daxueconsulting.com/understand-drinking-culture-china/
Wang, N 2017, ‘China’s top 10 imported wines by country’, Thedrinksbusiness.com, viewed 13
October 2018, https://www.thedrinksbusiness.com/2017/07/chinas-top-10-wine-importingcountries/
Australian Taxation Office 2018, Company Tax Rates, viewed 17 October 2018,
https://www.ato.gov.au/Rates/Company-tax/
Bukvic, I, B, Kantor, N & Buljubasic, D, B 2009, ‘Project risk measurement trough beta
calculation’, Annals of DAAAM & Proceedings, pp. 111.
Brailsford, T, J & Josev, T 1997, ‘The impact of the return interval on the estimation of systematic
risk’, Pacific-Basin Finance Journal, vol. 5, no. 3, pp. 357-376.
Eubank, A, A & Zumwalt, J, K 1979, ‘An Analysis of the Forecast Error Impact of Alternative
Beta Adjustment Techniques and Risk Classes’, The Journal of Finance, vol. 34, no. 3, pp.
761-776.
Fuller, R, J & Kerr, H, S 1981, ‘Estimating the Divisional Cost of Capital: An Analysis of the
Pure-Play Technique’, The Journal of Finance, vol. 36, no. 5, pp. 997-1009.
Li, B & Li, J 2012. ‘Empirical portfolio analysis: MV vs CAPM’, Proceedings of International
Economics Development & Research, International Association of Computer Science &
Information Technology Press, np42, pp. 259-266.
Milionis, A 2011, ‘A conditional CAPM: implications for systematic risk estimation’, The
Journal of Risk Finance, vol. 12, no. 4, pp. 306-314.
Morningstar DatAnalysis Premium 2018, Treasury Wine Estates Limited, viewed 17 October 2018,
https://datanalysis-morningstar-comau.ezproxy1.library.usyd.edu.au/af/company/pricehistorydefault?ASXCode=TWE&page=1&resultsperpage=25&active=PRC_Sec1&xslgraphtype=tr10&xtm-licensee=datpremium
Park, S 2012, ‘Optimal Discount Rates for Government Projects’, ISRN Economics, vol. 2012, pp.
1-13.
Sharpe, W, F 1964, ‘Capital Asset Prices: A Theory of Market Equilibrium under Conditions of
Risk’, The Journal of Finance, vol. 19, no. 3, pp. 425-442.
Titman, S, Keown, A, J & Martin, J, D 2014, Financial management: principles and
applications, 12th edn, Pearson, Upper Saddle River.
Warren, G, J 2008, ‘Implications for Asset Pricing Puzzles of a Roll‐over Assumption for the Risk‐
Free Asset’, International Review of Finance, vol. 8, no. 3‐4, pp. 125-157.
Zhao, R, Schmidt, C & Terry, C 2016, ‘Index effects: Evidence from Australia’, Journal of Internet
Banking and Commerce, vol. 21, no. 1, pp. 1.
Barnea, A, Haugen, R, A & Senbet, L, W 1981, ‘An Equilibrium Analysis of Debt Financing
Under Costly Tax Arbitrage and Agency Problems’, The Journal of Finance, vol. 36, no. 3,
pp. 569-581.
Damodaran, A 2018, Ratings, Interest Coverage Ratios and Default Spread, viewed 22 October
2018, http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ratings.htm
Kisgen, D, J 2006. Credit ratings and capital structure. The Journal of Finance, 61(3), pp.10351072.
Longstaff, F, A, Mithal, S & Neis, E 2005, ‘Corporate Yield Spreads: Default Risk or Liquidity?
New Evidence from the Credit Default Swap Market’, The Journal of Finance, vol. 60, no.
5, pp. 2213-2253.
Miles, J, A & Ezzell, J, R 1980, ‘The Weighted Average Cost of Capital, Perfect Capital
Markets, and Project Life: A Clarification’, Journal of Financial and Quantitative
Analysis, vol. 15, no. 3, pp. 719-730.
Schaefer, S, M & Strebulaev, I, A 2008, ‘Structural models of credit risk are useful: Evidence
from hedge ratios on corporate bonds’, Journal of Financial Economics, vol. 90, no. 1, pp.
1-19.
Tillich, D & Ferger, D 2015, ‘Estimation of rating classes and default probabilities in credit risk
models with dependencies’, Applied Stochastic Models in Business and Industry, vol. 31,
no. 6, pp. 762-781.
Ignacio V, & Joseph T 2009, ‘Market value calculation and the solution of
circularity between value and the weighted average cost of capital WACC.’
Ram-Revista de Administracao Mackenzie, vol. 10, no. 6, pp. 101-131.
Koziol, C 2013, ‘A simple correction of the WACC discount rate for default risk and bankruptcy
cost’. Review of Quantitative Finance and Accounting, 42, pp.653-666
Kruger P, Landier A & Thesmar D, 2015,‘ The WACC Fallacy: The Real Effects of Using a Unique
Discount Rate.’ The Journal of Finance, vol. LXX, No. 3, June 2015, pp.1253-1285
Modigliani, F., and M. Miller. ‘The cost of capital, corporation finance and the theory of
investment.’ American Economic Review, Vol.48, No.3, pp. 261-297
Miles, J. and Ezzell, J 1980, ‘The Weighted Average Cost of Capital, Perfect Capital Markets, and
Project Life: A Clarification’, The Journal of Financial and Quantitative Analysis, vol. 15, no. 3,
pp.719-730.
Myers, S. and Ruback, R 1987, ‘Discounting Rules for Risky Assets’, The National Bureau of
Economic Research, no.2219.
Morningstar.com.au. 2018, Treasury Wine Estates Limited - Quote and News, viewed 19 October
2018,
https://www.morningstar.com.au/Stocks/NewsAndQuotes/TWE
Officer, R. R 1994, ‘The Cost of Capital of A Company Under An Imputation Tax
System’. Accounting & Finance, vol. 34, issues 1, pp.1-17.
Treasury
Wine
Estates,
Annual
report
2018,
viewed
https://www.tweglobal.com/investors/annual-reports#undefined
18
October
2018,
Purchase answer to see full
attachment