LP3.2 Assignment: Cost of Capital

This assignment will assess the competency 3. CREATE financing alternatives to improve shareholder wealth.

Directions: Christopher William, president of William Industries which produces widgets, has hired you to determine its cost of debt and the cost of equity capital. The stock currently sells for $25 per share and the dividend will be $5. Christopher argues that it will cost us $5 per share to use the stockholders money this year, therefore, the cost of equity is equal to 20%. Furthermore, Christopher believes that the cost of debt is 25%. This is based upon the most recent financial statements which show that William Industries has total liabilities of $10 million and will face total interest expenses for the year of $2.5 million. Christopher argues that the company should increase its use of equity financing because debt costs 25% while equity only costs 20% and thus, equity is cheaper. Is Christopher’s analysis of the cost of equity, debt, and decision to increase the use of equity financing over debt financing accurate? Defend your answers in a 500 to 750-word report and cite your sources.

Submit this assignment to your instructor via the dropbox "LP3.2 Assignment: Cost of Capital." This assignment is worth 65 points and will be graded according to the Graduate Case Study Rubric.

LP3 - Final Project

Part C: Discussion of Ford’s capital structure. You will review Ford’s consolidated financial statements. You will calculate the company’s debt/equity ratio and earnings per share. You will also determine the company’s return on investment and weighted average cost of capital.

Requirements:
Step 1: Review the form 10K, item 15, to determine Ford’s capital structure. From the consolidated balance sheet, what kinds of stock has Ford issued?

Step 2: Read note 24. CAPITAL STOCK AND AMOUNTS PER SHARE. What is the meaning of Earnings per share and diluted earnings per share? Share your comments with your classmates in Discussion 3.2.

Step 3: Calculate the debt/equity ratio. Use all long-term debt in your calculation. Compare your answer to publicly available information. Share your analysis with your classmates in Discussion 3.2.

Step 4: Calculate the Earnings per Share. Compare your answer to publicly available information. Share your analysis with your classmates in Discussion 3.2.

Step 5: Determine the company’s return on investment. Compare your answer to any website listed in the directions. Share your analysis with your classmates in Discussion 3.3.

Step 6: Determine the company’s weighted average cost of capital. Compare your answer to any of the websites listed in the directions. Share your analysis with your classmates in Discussion 3.2.

Step 7: Comment on whether the firm’s capital structure is optimal.

Step 8: Add to the document you started on Part A. Your final submission will include the results from part A - D.

 

 

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Status NEW Posted 07 Oct 2017 04:10 AM My Price 12.00

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file 1507351597-FN6350 Financial Management LP3.2 Assignment.docx preview (762 words )

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