Cost of capital

Grading Criteria

Proficient

Maximum Points

Explain the cost of capital and how it is determined.

Description of the cost of capital and how it is determined is accurate, specific, and clear.

12

Explain the concept of the optimal capital structure and how it can be determined.

Description of the concept of the optimal capital structure and how it is determined is accurate, specific, and clear.

12

Explain the concept of the financial leverage and analyze how it can affect capital structure decisions.

Description of how a larger debt to equity ratios increases (leverages) corporate performance during profitable times, but decreases performance further during unprofitable times. Higher debt to equity ratios also increases risk.

16

Provide an example of a highly leveraged firm and estimate the leverage’s effect when the firm is doing well, and when there is a downturn in sales.

The example identified is accurate and relevant to the business world.

12

Writing Standards

Write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources (i.e. APA); and display accurate spelling, grammar, and punctuation.

Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; and displayed accurate spelling, grammar, and punctuation.

8

Total:

60