Weighted Average Cost of Capital (presentation)

User Generated

Cnavp2911

Business Finance

Finance for Business

Description

Purpose of Assignment

Students should understand the mechanics in calculating a company's weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products.

Scenario: You work for an investment banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor's capital structure is as follows:

Source of Capital

Market Value

Bonds

$10,000,000

Preferred Stock

$2,000,000

Common Stock

$8,000,000

To finance the investment, Vestor has issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm's tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10-Year Treasury note is currently yielding 3.5%.

Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project.

Assess whether Vestor should make the warehouse investment.

Prepare your analysis in a minimum of 700 words in Microsoft® Word.

Use Microsoft® Word tables in the presentation if you choose.

Show all calculations and analysis in the presentation.

Format your assignment consistent with APA guidelines.

Unformatted Attachment Preview

Weighted Average Cost of Capital Grading Guide FIN/370 Version 11 Weighted Average Cost of Capital Weighted Average Cost of Capital Grading Guide FIN/370 Version 11 Learning Team: Weighted Average Cost of Capital Purpose of Assignment Students should understand the mechanics in calculating a company’s weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments. Resources Required Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web that offer support for office products. Grading Guide Content Met Partially Met Not Met Total Available Total Earned 11 #/11 Partially Met Not Met Comments: Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project. Assess whether Vestor should make the warehouse investment. Shows all calculations and analysis. The analysis is 700 words in length. Writing Guidelines The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements. Intellectual property is recognized with in-text citations and a reference page. Paragraph and sentence transitions are present, logical, and maintain the flow throughout the paper. Met Comments: 2 Weighted Average Cost of Capital Grading Guide FIN/370 Version 11 Writing Guidelines Met Partially Met Not Met Total Available Total Earned 4 #/4 15 #/ 15 Sentences are complete, clear, and concise. Rules of grammar and usage are followed including spelling and punctuation. Assignment Total Additional comments: # Comments: 3
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Ever...


Anonymous
Just what I was looking for! Super helpful.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Content

Related Tags