The Firm’s Cost of Capital

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Prior to beginning work on this discussion, read Chapters 12 and 13 of your textbook, and test your knowledge in the MindTap Practice Chapter 12 Problem 8 and Chapter 12 Problem 10. Although not required, it is recommended that you also review the chapter videos and flashcards available in the recommended resources section of your course.

You have been hired as a Financial Analyst by your chosen company. Your assignment is to estimate the firms cost of capital for a new expansion project. To get started, The Director of Finance has asked you to gather the following information in order to complete your estimates for the cost or capital. Use your chosen companys most recent annual financial statements and the firms marginal tax rate to compute any after-tax costs, ensuring you show your work for all computations.

In your paper,

• Compute the component cost for the current outstanding bonds and long-term debt. (You do not need to calculate short term debt, as the firm does not use short-term debt on a permanent basis.)
• Compute the component cost for the firms preferred stock, if applicable.
• Compute the component cost for the firms common stock at its current selling price.
• Compute the firms current target capital structure.
• Compute your chosen companys weighted average cost of capital.
• Determine the area of your analysis that has the greatest potential for error.
  • Identify the reason for the potential for error.
  • Identify what could be done, if anything, to improve computations in these areas.
• Recommend an optimal capital structure to the finance director.
  • Discuss the pros and cons of your recommendations using credible sources to support your analysis

The Firms Cost of Capital paper

• Must be three to five double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the UAGC Writing Centers APA Style (Links to an external site.) resource.
• Must include a separate title page with the following:
  • Title of paper
  • Students name
  • Course name and number
  • Instructors name
  • Date submitted

For further assistance with the formatting and the title page, refer to APA Formatting for Word 2013 (Links to an external site.).

• Must utilize academic voice. See the Academic Voice (Links to an external site.) resource for additional guidance.
• Must include an introduction and conclusion paragraph. Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper.
  • For assistance on writing Introductions & Conclusions (Links to an external site.) as well as Writing a Thesis Statement (Links to an external site.), refer to the UAGC Writing Center resources.
• Must use at least three credible sources in addition to the course text to support your analysis.
  • The Scholarly, Peer Reviewed, and Other Credible Sources (Links to an external site.) table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.
• Must document any information used from sources in APA style as outlined in the UAGC Writing Centers Citing Within Your Paper (Links to an external site.) guide.
• Must include a separate references page that is formatted according to APA style as outlined in the UAGC Writing Center. See the Formatting Your References List (Links to an external site.) resource in the UAGC Writing Center for specifications.

Carefully review the Grading Rubric (Links to an external site.) for the criteria that will be used to evaluate your assignment.

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