Evaluation Of Bond Value, Share Price, And Free Cash Flow For Royal Dutch Shell
- December 21, 2023/ Uncategorized
Bond Value and Market Price for Royal Dutch Shell
|
Particulars |
Value |
|
Face Value |
$ 100 |
|
Coupon Rate p.a. |
2.25% |
|
Half Year Coupon Rate |
1.13% |
|
Coupon Payment |
1.13 |
|
Yield Rate |
2.62% |
|
Half Yearly Yield Rate |
1.31% |
|
Total Period |
6 |
|
No. of Coupon Payments |
12 |
|
Market Price of Bonds |
$ 97.96 |
The overall evaluation mainly indicates that bond value is mainly less than par for Royal Dutch Shell, as it is valued at $97.96. This relevant decline in valuation is mainly due to the rising yield rate incurred for the bond. The difference in bond coupon payment rate and yield rate is mainly declining value of the bond to $97.96, which is less than the par value of $100. Therefore, it could be understood that the reduced coupon payment in comparison with yield rate could directly decline value of bond in the market. Ballotta and Kyriakou (2015) mentioned that bond value mainly increases when interest rate declines, as investors are able to generate higher return from investment. However, any increment in the interest rate could directly reduce value of the bond, as investor will not be able to generate high returns from investment.
|
Particulars |
Value |
|
Current share price in Euro |
€ 28.93 |
|
EUR to USD |
$ 1.22 |
|
Market return |
9.00% |
|
Risk free rate |
1.25% |
|
Annual dividend in USD |
$ 1.41 |
|
Annual dividend in Euro |
€ 1.15 |
|
Growth rate |
5.00% |
|
Cost of capital |
7.75% |
|
Current Share price in Euro |
(1.15*(1+5%))/(7.75%-5%) |
|
Current Share price in Euro |
€ 44.06 |
From the evaluation of above table, current share price of Shell is mainly identified, which could in turn allow investors in making adequate decisions. The evaluation also states that current the theoretical evaluation of Shell share price under divided discount model is mainly at € 44.06. However, the actual share price of the organisation is mainly at € 28.93 and theoretical value is mainly at € 44.06, which indicates that the investor to buy share of the organisation to generate higher revenue from investment. The difference between actual and theatrical price could allow the investor in increasing their profitability in anticipation of share price rise in future. Lazzati and Menichini (2015) mentioned that investors with the help of dividend discount model are mainly able to detect investment opportunity and raise their profit level.
|
Year |
Incremental revenue |
Incremental costs project |
Depreciation |
Free Cash Flow |
Tax |
Free cash flow after tax |
Cumulative cash flow |
|
0 |
$ (27,000,000,000) |
$ (27,000,000,000) |
$ (27,000,000,000) |
||||
|
1 |
$ 3,633,300,000 |
$ 1,089,990,000 |
$ 889,200,000 |
$ 1,654,110,000 |
$ 496,233,000 |
$ 2,047,077,000 |
$ (24,952,923,000) |
|
2 |
$ 3,705,966,000 |
$ 1,089,990,000 |
$ 889,200,000 |
$ 1,726,776,000 |
$ 518,032,800 |
$ 2,097,943,200 |
$ (22,854,979,800) |
|
3 |
$ 3,780,085,320 |
$ 1,057,290,300 |
$ 889,200,000 |
$ 1,833,595,020 |
$ 550,078,506 |
$ 2,172,716,514 |
$ (20,682,263,286) |
|
4 |
$ 3,855,687,026 |
$ 1,025,571,591 |
$ 889,200,000 |
$ 1,940,915,435 |
$ 582,274,631 |
$ 2,247,840,805 |
$ (18,434,422,481) |
|
5 |
$ 3,932,800,767 |
$ 994,804,443 |
$ 889,200,000 |
$ 2,048,796,324 |
$ 614,638,897 |
$ 2,323,357,427 |
$ (16,111,065,055) |
|
6 |
$ 4,011,456,782 |
$ 964,960,310 |
$ 889,200,000 |
$ 2,157,296,472 |
$ 647,188,942 |
$ 2,399,307,531 |
$ (13,711,757,524) |
|
7 |
$ 4,091,685,918 |
$ 936,011,501 |
$ 889,200,000 |
$ 2,266,474,417 |
$ 679,942,325 |
$ 2,475,732,092 |
$ (11,236,025,432) |
|
8 |
$ 4,173,519,636 |
$ 907,931,156 |
$ 889,200,000 |
$ 2,376,388,481 |
$ 712,916,544 |
$ 2,552,671,936 |
$ (8,683,353,496) |
|
9 |
$ 4,256,990,029 |
$ 880,693,221 |
$ 889,200,000 |
$ 2,487,096,808 |
$ 746,129,042 |
$ 2,630,167,766 |
$ (6,053,185,730) |
|
10 |
$ 4,342,129,830 |
$ 854,272,424 |
$ 889,200,000 |
$ 2,598,657,405 |
$ 779,597,222 |
$ 2,708,260,184 |
$ (3,344,925,546) |
|
11 |
$ 4,428,972,426 |
$ 828,644,252 |
$ 889,200,000 |
$ 2,711,128,175 |
$ 813,338,452 |
$ 2,786,989,722 |
$ (557,935,824) |
|
12 |
$ 4,517,551,875 |
$ 803,784,924 |
$ 889,200,000 |
$ 2,824,566,951 |
$ 847,370,085 |
$ 2,866,396,865 |
$ 2,308,461,041 |
|
13 |
$ 4,607,902,912 |
$ 779,671,376 |
$ 889,200,000 |
$ 2,939,031,536 |
$ 881,709,461 |
$ 2,946,522,075 |
$ 5,254,983,116 |
|
14 |
$ 4,700,060,970 |
$ 756,281,235 |
$ 889,200,000 |
$ 3,054,579,735 |
$ 916,373,921 |
$ 3,027,405,815 |
$ 8,282,388,931 |
|
15 |
$ 4,794,062,190 |
$ 733,592,798 |
$ 889,200,000 |
$ 3,171,269,392 |
$ 951,380,818 |
$ 3,109,088,574 |
$ 11,391,477,505 |
|
16 |
$ 4,889,943,434 |
$ 711,585,014 |
$ 889,200,000 |
$ 3,289,158,420 |
$ 986,747,526 |
$ 3,191,610,894 |
$ 14,583,088,399 |
|
17 |
$ 4,987,742,302 |
$ 690,237,464 |
$ 889,200,000 |
$ 3,408,304,839 |
$ 1,022,491,452 |
$ 3,275,013,387 |
$ 17,858,101,786 |
|
18 |
$ 5,087,497,148 |
$ 669,530,340 |
$ 889,200,000 |
$ 3,528,766,809 |
$ 1,058,630,043 |
$ 3,359,336,766 |
$ 21,217,438,552 |
|
19 |
$ 5,189,247,091 |
$ 649,444,430 |
$ 889,200,000 |
$ 3,650,602,662 |
$ 1,095,180,799 |
$ 3,444,621,863 |
$ 24,662,060,415 |
|
20 |
$ 5,293,032,033 |
$ 629,961,097 |
$ 889,200,000 |
$ 3,773,870,936 |
$ 1,132,161,281 |
$ 3,530,909,656 |
$ 28,192,970,071 |
|
Year |
Free cash flow after tax |
|
0 |
$ (27,000,000,000) |
|
1 |
$ 2,047,077,000 |
|
2 |
$ 2,097,943,200 |
|
3 |
$ 2,172,716,514 |
|
4 |
$ 2,247,840,805 |
|
5 |
$ 2,323,357,427 |
|
6 |
$ 2,399,307,531 |
|
7 |
$ 2,475,732,092 |
|
8 |
$ 2,552,671,936 |
|
9 |
$ 2,630,167,766 |
|
10 |
$ 2,708,260,184 |
|
11 |
$ 2,786,989,722 |
|
12 |
$ 2,866,396,865 |
|
13 |
$ 2,946,522,075 |
|
14 |
$ 3,027,405,815 |
|
15 |
$ 3,109,088,574 |
|
16 |
$ 3,191,610,894 |
|
17 |
$ 3,275,013,387 |
|
18 |
$ 3,359,336,766 |
|
19 |
$ 3,444,621,863 |
|
20 |
$ 3,530,909,656 |
|
Cost of capital |
5.94% |
|
NPV of the project |
$ 3,109,533,658.79 |
The NPV of the project at the cost of capital 5.94% is mainly at $3,109,533,658.79, which is relevantly positive and indicate financial viability of the proposed gas project. Hence, it could be assumed that under the WACC of 5.94% the organisation could increase their probability in future.
|
Year |
Free cash flow after tax |
|
0 |
$ (27,000,000,000) |
|
1 |
$ 2,047,077,000 |
|
2 |
$ 2,097,943,200 |
|
3 |
$ 2,172,716,514 |
|
4 |
$ 2,247,840,805 |
|
5 |
$ 2,323,357,427 |
|
6 |
$ 2,399,307,531 |
|
7 |
$ 2,475,732,092 |
|
8 |
$ 2,552,671,936 |
|
9 |
$ 2,630,167,766 |
|
10 |
$ 2,708,260,184 |
|
11 |
$ 2,786,989,722 |
|
12 |
$ 2,866,396,865 |
|
13 |
$ 2,946,522,075 |
|
14 |
$ 3,027,405,815 |
|
15 |
$ 3,109,088,574 |
|
16 |
$ 3,191,610,894 |
|
17 |
$ 3,275,013,387 |
|
18 |
$ 3,359,336,766 |
|
19 |
$ 3,444,621,863 |
|
20 |
$ 3,530,909,656 |
|
Cost of capital |
8% |
|
NPV of the project |
$ (1,800,863,909.18) |
Shell should not investment in the project if its WACC is at 8%, as the overall NPV of the project is negative. Therefore, it could be understood that the project is not portraying the relevant returns, which could be generated from operations (Baum and Crosby 2014). In addition, the time value of money is relevantly nullifying the returns that is provided from the project under the cost of capital 8%.
Reference and Bibliography:
Ballotta, L. and Kyriakou, I., 2015. Convertible bond valuation in a jump diffusion setting with stochastic interest rates. Quantitative Finance, 15(1), pp.115-129.
Baum, A.E. and Crosby, N., 2014. Property investment appraisal. John Wiley & Sons.
Gotze, U., Northcott, D. and Schuster, P., 2016. INVESTMENT APPRAISAL. SPRINGER-VERLAG BERLIN AN.
Lazzati, N. and Menichini, A.A., 2015. A dynamic approach to the dividend discount model. Review of Pacific Basin Financial Markets and Policies, 18(03), p.1550018.
