The capital structure decision and the cost of capital
In simple words, the capital structure is the combination of debt and equity used to finance a company. The Background reading for this module provides plenty of information regarding both the issue of the capital structure decision and the concept of the weighted average cost of capital.
For the this assignment, consider the following three companies:
i) eBay (NasdaqGS: EBAY)
ii) The Clorox Company (NYSE: CLX)
iii) Alaska Air Group Inc. (NYSE: ALK)
Ebay Inc. (2012). Investor relations. Retrieved May 2012 from https://investor.ebay.com
To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: https://ca.finance.yahoo.com/q?s=EBAY&ql=0 ; https://ca.finance.yahoo.com/q/ks?s=EBAY
The Clorox Company (2012). Investors. Retrieved May 2012 from https://investors.thecloroxcompany.com/
To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: https://ca.finance.yahoo.com/q?s=CLX&ql=0 ; https://ca.finance.yahoo.com/q/ks?s=CLX
Alaska Air Group, Inc. (2012). Investor relations. Retrieved May 2012 from https://phx.corporate-ir.net/phoenix.zhtml?c=109361&p=irol-IRHome
To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: https://ca.finance.yahoo.com/q?s=ALK&ql=1 ; https://ca.finance.yahoo.com/q/ks?s=ALK
To complete this assignment, explore the websites of the above companies, read the information in the background material, search for more information, and then write a 5-page report responding to the following tasks:
1) Based on the readings of the module and upon reviewing total debt/equity ratios, company betas, profitability ratios, company revenue, assets, and liabilities, and the nature of the operations of the companies, including the nature of their customers and products, what would you recommend to be the capital structure (total liabilities or debt and equity proportions) for each of the three companies?
In your report, include the information along with other information that you think is necessary to answer the above question. Consider the following:
• The nature of the business in brief (all three companies).
• Total current assets and long-term assets of all three companies.
• Total current liabilities and long-term liabilities of all three companies.
• Revenue of each company.
• Total debt/equity ratios of all three companies.
• Profit margin, returns on assets, and return on equity ratios of all three companies.
• Betas of all three companies.
• The riskiness of all three companies in brief (e.g., the higher the beta, the higher the risk).
• The advantages and disadvantages of debt over equity financing.
2) What do you perceive you have learned in the Case Assignment? Which of the following learning outcomes do you feel you have mastered?
• Explain and demonstrate the use of bonds and other debt instruments in financing the firm's capital plans.
• Discuss the advantages and disadvantages of debt financing and of equity financing.
• Identify and discuss the concept of optimal capital structure.
Provide a brief evaluation of this assignment.
Case Assignment Expectations
In this Assignment, you are expected to:
• Describe the purpose of the report and provide a conclusion.
• Answer the Case Assignment questions clearly and provide necessary details. The first paragraph should include a direct answer to the assignment question, with the body of the paper focused on defending your answer. Review "Tips for Good Writing" [https://cdad.trident.edu/CourseHomeModule.aspx?course=56&term=92&module=3&page=custom1] and a guideline to write awell-structured paper.
• Provide a quality argument-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and references on a separate page. Use APA format to provide citations and references [https://owl.english.purdue.edu/owl/resource/560/01/].
• Answer all the Case Assignment questions in an essay format. Do not type questions in the paper.
• Type and double-space the paper.