Description
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: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year.
Prepare a minimum 700-word analysis including the following:
- Calculate the company's weighted average cost of capital. Use the dividend discount model. Show calculations in Microsoft® Word.
- The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO.
Format your paper consistent with APA guidelines.
Explanation & Answer
Hi, here is you another assignment :). Please see the attached file ;)
1
WACC and Corporate Investment Decisions
Name
Affiliate
Date
2
Scenario:
Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and
60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common
stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by
4% per year.
Analysis and calculation:
Based on the scenario, we have to calculate the company's weighted average cost of
capital (WACC). But, before we have to proceed, it is important that we have fully understand
what is WACC. In this analysis, let us first determine the importance of WACC and its
definition. WACC is an essential metric and utilized as a part of speculation choices. It is all the
time called the obstacle rate (Wilkinson, 2013). It decides the normal cost of capital the firm
brings about for a blend of various financing sources. Ascertaining WACC gets less demanding
when you recognize what are its segments. In calculating the WACC< we have to use the
formula which shown below:
WACC = E
(re) +
D+E
...
Review
Review
