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Weighted Average Cost of Capital<\/u><\/strong><\/p>\n Purpose of Assignment<\/strong><\/p>\n Students should understand the mechanics in calculating a company’s weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments.<\/p>\n Assignment Steps <\/strong><\/p>\n Resources: <\/strong>Tutorial help on Excel\u00ae<\/sup> and Word functions can be found on the Microsoft\u00ae<\/sup> Office website. There are also additional tutorials via the web that offer support for office products. <\/strong><\/p>\n Scenario:<\/strong> You work for an investment-banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor’s capital structure is as follows: <\/strong><\/p>\n Source of Capital<\/p>\n<\/td>\n Market Value<\/p>\n<\/td>\n<\/tr>\n Bonds<\/p>\n<\/td>\n $10,000,000<\/p>\n<\/td>\n<\/tr>\n Preferred Stock<\/p>\n<\/td>\n $2,000,000<\/p>\n<\/td>\n<\/tr>\n Common Stock<\/p>\n<\/td>\n $8,000,000<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n To finance the investment, Vestor has issued 20-year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm’s tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10-Year Treasury note is currently yielding 3.5%. <\/strong><\/p>\n Determine<\/strong> what discount rate (WACC) Vestor should use to evaluate the warehousing facility project. <\/strong><\/p>\n Assess <\/strong>whether Vestor should make the warehouse investment.<\/p>\n Prepare<\/strong> your analysis in a minimum of 700 words in Microsoft\u00ae<\/sup> Word.<\/p>\n Use <\/strong>Microsoft <\/sup>Word tables in the presentation if you choose. <\/strong><\/p>\n Show<\/strong> all calculations and analysis in the presentation. <\/strong><\/p>\n Format <\/strong>your assignment consistent with APA guidelines. Weighted Average Cost of Capital Purpose of Assignment Students should understand the mechanics in calculating a company’s weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments. Assignment Steps Resources: Tutorial help on Excel\u00ae and Word functions can be found on the Microsoft\u00ae Office website. There […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_joinchat":[]},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/263295"}],"collection":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/comments?post=263295"}],"version-history":[{"count":1,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/263295\/revisions"}],"predecessor-version":[{"id":266551,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/263295\/revisions\/266551"}],"wp:attachment":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/media?parent=263295"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/categories?post=263295"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/tags?post=263295"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
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