Assignment 1
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
Assignment 2
Purpose of Assignment
Students should understand corporate risk and be able to use the financial models learned in the class to evaluate and calculate a company's weighted average cost of capital and use the analysis to make company investment decisions.
About Your Signature Assignment
This signature assignment is designed to align with specific program student learning outcome(s) in your program. Program Student Learning Outcomes are broad statements that describe what students should know and be able to do upon completion of their degree. The signature assignments may be graded with an automated rubric that allows the University to collect data that can be aggregated across a location or college/school and used for program improvements.
Assignment Steps
Resources: Tutorial help on Excel and Word functions can be found on the MicrosoftOffice 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.