Weighted Average cost of capital - NEED ASAP!

FIN 685 Case Study Four Guidelines and Rubric Capital structure is the percentage of a company’s operating money acquired via debt or equity. It is also an acutely importa nt management decision as it impacts a company’s risk profile. The weighted average cost of capital (WACC) is an important tool for the capital structure. The cost of capital is a minimum rate of return on a project for the firm. The cost of capital is inversely related to the value of the firm. The lower the WACC is, the higher the firm’s value. This case study will provide you an opportunity to explore practical considerations of an optimal capital structure and to calculate the WACC of two firms within the same industry. Prompt: First, discuss three practical considerations that would guide you in selecting the optimal capital structure for your firm. Rank these considerations from the most to the least important and explain why you ranked them in that way. Next, go to the website Yahoo! Industry Summary and select two firms within the same industry. The industry may be that in which you currently work or it may be in another industry that interests you. Calculate the WACC for the two firms. Discuss how the WACCs compare and also discuss whether the WACCs are what you would expect. Lastly, discuss what might cause the differences between the two firms’ WACCs. Specifically, the following critical elements must be addressed:

I. Capital Structure a) Discuss three practical considerations that would guide you in selecting an optimal capital structure for your firm. b) Rank the considerations from most important to least important and explain why.

II. WACC a) Select two firms within the same industry and calculate the WACC for each firm. b) Discuss how the WACCs compare. c) Discuss whether the WACCs are what you would expect. d) Discuss what might cause the differences in the two WACCs.

Rubric Guidelines for Submission: Your paper must be submitted as a 2-page (maximum) Microsoft Word document with double spacing, 12-point Times New Roman font, one-inch margins, and at least 2 sources, in addition to the textbook, cited in APA format.

Critical Elements Exemplary (100%) Proficient (90%) Needs Improvement (70%) Not Evident (0%) Value

Capital Structure: Practical

Considerations

Meets “Profi ci ent” cri teri a and di s cus sion us es s chol arly

res earch to s upport i deas

Di s cus s es practical cons i derati ons that woul d

provi de gui dance i n s el ecti ng an opti mal capi tal s tructure for a fi rm

Di s cus s es practical cons i derati ons but l acks detai l

Does not di s cus s practi cal cons i derati ons

15

Capital Structure:

Rank and Why

Meets “Profi ci ent” cri teri a and

expl anati on us es s chol arly res earch to s upport i deas

Ranks the cons i derati ons from

mos t i mportant to l eas t i mportant and expl ai ns why the ranki ng was chos en

Ranks the cons i derati ons but

expl anati on l acks detai l

Does not rank nor expl ai n

ranki ng

15

WACCs: Calculation Correctl y cal cul ates the WACCs for the fi rms

Cal cul ates the WACCs for the fi rms wi thi n the s ame i ndus try,

but s ome ans wers may not be correct

Cal cul ates the WACCs for the fi rms but no ans wer i s correct

Does not cal culate the WACC 15

WACCs: Comparison

Meets “Profi ci ent” cri teri a and compari s on i s particularly comprehens i ve

Compares the two WACCs Compares the two WACCs but compari s on l acks detai l

Does not compare the two WACCs

15

WACCs:

Expectation

Meets “Profi ci ent” cri teri a and

s upports the di s cus sion wi th i nformati on from cours e s ources

Di s cus s es whether the WACCs

al i gn wi th expectati ons

Di s cus s es whether the WACCs

al i gn wi th expectati ons but di s cus sion l acks detai l

Does not di s cus s whether the

WACCs al i gn wi th expectati ons

15

WACCs: Cause of Differences

Meets “Profi ci ent” cri teri a and s upports the di s cus sion wi th

i nformati on from cours e s ources

Di s cus s es the caus e of the di fferences i n the two WACCs

Di s cus s es the caus e but l acks detai l

Does not di s cus s the caus e of di fferences

15

Articulation of Response

Submi s s i on i s free of errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, and

organi zati on and i s pres ented i n a profes s i onal and eas y to read format

Submi s s i on has no major errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or organi zati on

Submi s s i on has major errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or organi zati on

that negati vel y i mpact readabi l ity and arti culation of mai n i deas

Submi s s i on has criti cal errors rel ated to ci tati ons , grammar, s pel l i ng, s yntax, or organi zati on

that prevent unders tandi ng of i deas

10

Earned Total 100%