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.
