The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital.
The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital. Nevertheless, the guidelines failed to fully demonstrate the essence of the cost of debt and equity, which is the required rate of return expected by suppliers of funds.
You are the Genesis accountant and have taken a class recently in financing. You agree to prepare a PowerPoint presentation of approximately 6–8 minutes using the examples and information below:
- Debt: Jones Industries borrows $600,000 for 10 years with an annual payment of $100,000. What is the expected interest rate (cost of debt)?
- Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is 3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones’s stock (cost of equity). Here are the details:
Jones Total Assets
Long- & short-term debt $600,000 Common internal stock equity $400,000 New common stock equity $1,000,000 Total liabilities & equity $2,000,000
Develop a 10–12-slide presentation in PowerPoint format. Perform your calculations in an Excel spreadsheet. Cut and paste the calculation into your presentation. Include speaker’s notes to explain each point in detail. Apply APA standards to citation of sources. Use the following file naming convention: LastnameFirstInitial_M4_A2.ppt.
By Monday, August 20, 2012, deliver your assignment to the M4: Assignment 2 Dropbox.
No Answer Can Be BETTER Than This!! GUARANTEED!!!
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Cost of Equity:-
Cost xx xxxxxx is defined xx xxx return xxxxx stockholders require xx xxxxx investments. xx is xxx xxxxxxxx xxxx of return xxx xxx xxxxxxxxxxx xxx xx is cost xxx xxx company. xxxx of xxxxxx can be xxxxxxxxxx xx xxx xxxxx Dividend xxxxxxxxx model xxx Capital xxxxx Pricing xxxxxx xxx xxx xxxx through xxxxx xxxx xx equity xx xxxxxxxxxxx
xxxxxxxx xxx the both the xxxxxx xxx given below:-
xxx = xxxxxxxxxxxx
xx x Market xxxxxx
xxx xxxx xxxx return
xxxxx defined at investopedia. xxxxxxxxx from http://www.investopedia.com/terms/c/capm.asp
Dividend xxxxxxxxx xxxxxxx
k.e x Dividend per share/Current xxxxxx value xx stock + Growth rate xx xxxxxxxxxx
Cost of Debt:-
xxxxx xxx the borrowing which company xxxxx xx xxxxxxx xxx xxxxxxx therefore they have xx pay xxxxxxxx on xxxxx xxxxxxxxxx So the xxxx of xxxx is that xxxxxxxx which xxxxxxx xxx xx xxx xx xxx xxxxxxxxxx and normally it is taken after tax as xx is xxx tax deductible expense.
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|Cost xx Debt|
|xxxxxxxx xxxx||x in PVIF formula|
|xxx x in PVIF formula xxx||6.0147727404x||10.50%|
|Cost xx Equity|
|WACC xx xx used xx required xxxx xx return|
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