WACC and Corporate Investment Decisions
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 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.
Preparea
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.
