Define marginal cost of capital.

FINANCE IP3

750–1,000 words

 

 

 

 

Respond to the following scenario with your thoughts, ideas, and comments. Be substantive and clear, and use research to reinforce your ideas.

Mary Francis has just returned to her office after attending preliminary discussions with investment bankers. Her last meeting regarding the intended capital structure of Apix went well, and she calls you into her office to discuss the next steps.

“We will need to determine the required return for our intended project so that we have a decision criteria defined for the project,” she says.

“Do you have the information I need to describe capital structure and to calculate the weighted average cost of capital (WACC)?” you ask.

“I do,” she smiles. “We can determine the target WACC for Apix Printing Inc., given these assumptions,” she says as she hands you a piece of paper that says the following:

  • Weights of 40% debt and 60% common equity (no preferred equity)
  • A 35% tax rate
  • Cost of debt is 8%
  • Beta of the company is 1.5
  • Risk-free rate is 2%
  • Return on the market is 11%

“Great,” you say. “Thanks.”

“Be sure to indicate how these costs of capital might be used to determine the feasibility of the capital project,” Mary says. “I want your recommendation about which is more appropriate to apply to project evaluation, too. Let me know what you think.”

“One more thing,” she says as she stands up to signal the end of the meeting. “You did a good job with the explanations that you provided Luke the other day. Would you have time to define marginal cost of capital for me so I can include it in my discussions with investors? You seem to have a knack for making things accessible to nonfinancial folks.”

“No problem,” you say. “I’m glad my explanations are so useful!”

For this assignment, complete the following:

  • Describe capital structure.
  • Determine the WACC given the above assumptions.
  • Indicate how these might be useful to determine the feasibility of the capital project.
  • Recommend which is more appropriate to apply to project evaluation.
  • Define marginal cost of capital.

Please submit your assignment.

Answer
Submitted by Prof. Johnstar on Wed, 2016-08-17 23:49

teacher rated 58 times
4.74138
price: $15.00

answer for you

body preview (0 words)

file1.docx preview (794 words)

Capital Structure

Capital structure xx xxxxx as the xxxxxxxx of the xxxxxxxxxxxx which xxxxxxxx like xxxxxxxxxxx of xxxxxx economical debt, xx multiple investments. A firm’ capital framework xx xxx made xxxx xxx xxxxxxxxxxx of its liability. xx for example: a company xxxx provides x xx billion xxxxxxx in value xxx $ 60 xxxxxxx dollars in economical xxxxx are xxxx to xx 30% equity-financed and xxx xxxxxxxxxxxxxx The company’s amount xx xxxxxxxxxx debt to total funding would be xxxxx as xxx xx this xxxxxxxx xx xxxxxxxxxx xx xxx company’s control. xxx xxx xxxx town xxxxxxxx xxxxxxxxx xxx xxxxxxx xxx been xxxxxxxxx by the famous xxxxxxx students Modigliani-Miller.

xxxxxxx Ratio is the xxxxxxxxxx xx the main xxxx employed of the company which xxxx from xxxxxxx of the xxxxxxxx xxxxx xxxx xx xxxxxx a temporary xxxxxxxx loan xxxx

xxxx xxxxxxxxxxx

xxxx of xxxxxxx xxxxxxxx of xxx main xxxxxxxxx debts and xxx xxxxxxxxx xxxxxxxxxxx of xxxx and equity xx the xxxxx capital xxxxxxxxxx the total

– – – more text follows – – –

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:
 Total:

Last Completed Projects

# topic title discipline academic level pages delivered
6
Writer's choice
Business
University
2
1 hour 32 min
7
Wise Approach to
Philosophy
College
2
2 hours 19 min
8
1980's and 1990
History
College
3
2 hours 20 min
9
pick the best topic
Finance
School
2
2 hours 27 min
10
finance for leisure
Finance
University
12
2 hours 36 min