Phase 3 Individual Project Deliverable Length: 750–1,000 words Details: Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late...

1 answer below »















Phase 3 Individual Project
Deliverable Length:750–1,000 words
Details:

Weekly tasks or assignments (Individual or Group Projects) will be due by Monday and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.


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 Apex 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 Apex Printing, given these assumptions,” she says as she hands you a piece of paper.




  • 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 you provided Luke the other day. Would you have time to define
marginal cost of capitalfor 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!”



To recap, 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.


Answered Same DayDec 23, 2021

Answer To: Phase 3 Individual Project Deliverable Length: 750–1,000 words Details: Weekly tasks or assignments...

David answered on Dec 23 2021
120 Votes
Capital Structure & WACC – Apex Printing 1
Capital Structure & WACC – Apex Printing
Writer’s name
Course name and number
Instructor’s name
Date
Capital Structure & WACC – Apex Printing 2

Abstract
This paper mainly focuses on determining the target WACC of Apex Printing. Mary Francis has
just returned to her office after preliminary discussions with investment bankers. The job now is
to determine the target required return for the intended project along with description of capital
structure. This paper also tells us how the capital structure and WACC might be useful to
determine the feasibility of the project and a recommendation of which is more appropriate to
apply to project evaluation. Finally this paper also defines marginal cost of capital.
Capital Structure & WACC – Apex Printing 3

Capital Structure & WACC – Apex Printing
Introduction:
Apex printing is targeting to determine the required return of the intended project. In connection
with that, this paper describes the capital structure, determines the WACC, describes the
usefulness of capital structure and WACC to determine the feasibility of the project and a
recommendation of which is more appropriate to evaluate the project. Marginal cost of capital is
also being described.
Capital structure:
Capital structure refers to the composition of various types of financing namely debt, preferred
stock and common stock. All these components are the ways by which financing can be obtained
from the investors including public. The way the capital components are weighed in the capital
structure also determines the risk and solvency of the company. For example, too much of debt
in the capital structure increases the risk and cost of capital of a company. This is because the
debt investors would then interfere in the operations of the company and may stipulate terms for
further financing. Increase in debt also decreases the profits of the company because the interest
cost on debt needs to be paid irrespective of the availability of profits. In a way this decreases the
liquidity also because cash needs to be shed out regularly to pay interest. But the advantage of
debt capital is that the interest on debt is allowed as an expense for tax purposes, thereby
reducing the cost of debt and ultimately the WACC. Preferred stock capital carries fixed
dividend annually with no tax benefit. Apex printing’s capital structure does not have preferred
stock. Common stock capital is more common form of raising capital. The main advantages of
this form of capital are:
Capital Structure & WACC – Apex Printing 4

a) There is no requirement to regularly pay dividends.
b) Common stock investors get the last preference over repayment of capital in case of
liquidation.
c) Raising capital by way of...
SOLUTION.PDF
SOLUTION.PDF

Answer To This Question Is Available To Download

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Have files?