Description
PLEASE DO NOT ACCEPT IF YOU CANNOT MEET THE DEADLINE OR UNDERSTAND THE ASSIGNMENT.
I need a paper written that is between 800 - 1,000 words that uses the following scenario and addressing the items below WITH REFERENCES:
Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.
“We will need to determine the required return for our intended project so that we have a decision criteria defined for the project,” she says.
“Do you have the information I need to describe capital structure and to calculate the weighted average cost of capital (WACC)?” you ask.
“I do,” she smiles. “We can determine the target WACC for APEX Printing Inc., given these assumptions,” she says as she hands you a piece of paper that says the following:“Great,” you say. “Thanks.”
- Weights of 40% debt and 60% common equity (no preferred equity)
- A 35% tax rate
- Cost of debt is 8%
- Beta of the company is 1.5
- Risk-free rate is 2%
- Return on the market is 11%
“Be sure to indicate how these costs of capital might be used to determine the feasibility of the capital project,” Mary says. “I want your recommendation about which is more appropriate to apply to project evaluation, too. Let me know what you think.”
“One more thing,” she says as she stands up to signal the end of the meeting. “You did a good job with the explanations that you provided Luke the other day. Would you have time to define marginal cost of capital for me so I can include it in my discussions with investors? You seem to have a knack for making things accessible to nonfinancial folks.”
“No problem,” you say. “I’m glad my explanations are so useful!”
For this assignment, complete the following:
- Describe capital structure.
- Determine the WACC given the above assumptions.
- Indicate how these might be useful to determine the feasibility of the capital project.
- Recommend which is more appropriate to apply to project evaluation.
- Define marginal cost of capital.
I HAVE ALSO ATTACHED A COPY OF APEX FINANCIAL STATEMENTS
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Explanation & Answer
Hello,Please find the attached answer.In case of any issue or clarification,please let me know.Looking forward to working with you.Jerry.
Running head: INVESTMENT VALUATION
Investment Valuation
Student’s Name
Professor
University
Subject
Date
1
2
CAPITAL STRUCTURE
Capital structure.
This refers to how a company/firms entire growth and operations are financed through
the use of different fund sources (Baker & Martin, 2011).Capital structure is categorized into
two; equity and debts. Debts refers to bonds issued and equity are categorized into earnings
retained, preferred and common stocks. Debts which are short term like requirements for
working capital are considered as capital structure part.
Debt versus Equity
Debt refers to one of the major means by which firms elevate capital in capital markets .Usually
the firms give debts to get advantage of tax because the payments of the interest are taxdeductible(Baker & Martin, 2011).. If a company has debt, it is able to maintain the ownership as
compared to equity. Furthermore, if the rates of interest is low debt .is plentiful and access is
easy.
As compar...