Brent crude prices are currently much lower than that, at about $US69. Source: http://www.smh.com.au/business/mining-and-resources/santos-shelves-debt-raising-in-oil-price-rout-20141204-11zwxy.html#ixzz3ocFAswZAa) Analyse Santos' short term liquidity based on 2013 and 2014 financial figures. (5 marks) b) What is a convertible bond and why is it a hybrid security? (3 marks) c) In 2014 is Santos financing using predominantly long-term or short-term debt? Are they using predominantly direct or indirect debt financing? Why? What currency are they predominantly borrowing in? Refer to Source 1. (5 marks) d) Analyse the asset management, debt management, profitability and market expectations for Santos in 2014 as compared to 2013. (Hint: Use financial and market data in your ratio calculations and make sure to interpret and analyse the output) (14 marks) e) According to the Sources above what has happened to the yields on Santos hybrid securities (convertible bonds) in 2014-15? Why has this happened? How would it affect the price of its existing bonds today? (3 marks) 2. Company Perspective- BHP [30 marks] 1. The total market value of BHP's assets is $60,000,000. These assets are financed by $30,000,000 worth of issued bonds and $30,000,000 worth of issued ordinary shares. The bonds have an 8% annual coupon and are currently selling at their face value of $1000. The ordinary shares are currently selling at $30 and will pay a dividend at time 1 of $4.50 with dividends expected to grow at 1% forever. The tax rate is 30%. a) What is the WACC of BHP according to the above information? (8 marks) b) BHP decides to buy back $5,000,000 of its ordinary shares and issue $5,000,000 worth of new bonds. If the new bonds have an annual coupon rate of 5%, a maturity of 5 years, a face value of $1000 and similar bonds in the market yield 4%, how many bonds would BHP have to issue to raise the $5,000,000? (7 marks) c) After the transaction in b what would BHP's new WACC be? (5 marks) d) What is the WACC used for and in what circumstances can it be used? (5 marks)e) Is it better for a company to have a lower or higher WACC (cost of capital) for its projects? Why? What issues might arise if the WACC used by the company is lower than it should be? (Hint: This question relates to finding the link between Lecture 8 and 9) (5 marks)