Assignment: Cost Of Debt And Equity
The manager of Sensible Essential Consulting conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital. Nevertheless, the guidelines failed to fully demonstrate the essence of the cost of debt and equity, which is the required rate of return expected by suppliers of funds.
You are the Genesis Energy accountant and have taken a class recently in financing. You agree to prepare a PowerPoint presentation of approximately 6-8 minutes using the examples and information below:
1. Debt: Jones Industries borrows $600,000 for 10 years with an annual payment of $100,000. What is the expected interest rate (cost of debt)?
2. Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is
3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones's stock (cost of equity). Here are the details:
Total Assets
Jones $2,000,000
Long- & short-term debt $600,000
Common internal stock equity $400,000
New common stock equity $1,000,000
Total liabilities & equity $2,000,000
Develop a 10-12-slide presentation in PowerPoint format. Perform your calculations in an Excel spreadsheet. Cut and paste the calculations into your presentation. Include speaker's notes to explain each point in detail.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.