Writers Den

Assignment 2: Cost of
Debt and Equity

The manager of Sensible
Essentials 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:

Jones Total Assets	$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. Apply APA standards to
citation of sources. Use the following file naming convention:
LastnameFirstInitial_M4_A2.ppt.

By Wednesday,
April 19, 2017, deliver your assignment to the M4: Assignment 2
Dropbox.

Assignment 2 Grading Criteria	Maximum Points
Calculated the expected interest rate (cost of debt).	40
Calculated the expected rate of return on Jones’s stock (cost of equity).	40
Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.	20
Total:	100