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Rio Tinto Case

In: Business and Management

Submitted By jack12345
Words 586
Pages 3
RIO Questions (1) I should look at whether the current KS of RIO suggests any bus. Or finc risks (2) Does increase or decrease leverage (if I recommend) affect return or risk RIO is raising (3) Is RIO a high or low Beta company? HOW DOES GFC AFFECT ON RIO? (4) What is the average level of leverage within proxy firms and mining industry?

EBIT ($ millions, no taxes)
EPS ($)

0 0.2 0.4 0.6 0.8 1

3
2.5
2
1.5
1
0.5
0
– 0.5
– 1

D/E = 1
D/E = 0

This can be used in ass by showing the change in D/E ratio and how does it affect EPS
This graph show at which EBIT the two different D/E produce the same EPS

* Let’s evaluate the following ratios chapter 28 716 * Total book value of liabilities / total book value of equity (1) * Total debt / book value of equity (2) * Net debt / book value of equity (3) * Net debt = Total debt - cash * Net debt / net tangible assets (4) * Net tangible assets = total assets – intangible assets – total liabilities – preference shares * Net debt / market value of equity (5) * Notes: * It would be better to use market value of debt, but not all firms issue bonds * The above ratios can also be converted to have total assets (book value or market value) as the scaling factor * I need to evaluate these ratios for ass * RIO does not issue bonds => book value only
AUS has imputation tax system * (**) what is RIO tax position? * Can I calculate RIO tax shield? * Value of tax shield is calculated by assume that RIO is 100% equity, then calculate tax shield and discount it to perpetuity * Are there any limitations that reduce the value of RIO tax shield? * Are there any benefits for RIO shareholders at there current debt and tax positions, at the recommended level?...

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