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.
Essentials conducted an excellent seminar explaining
body preview (0 words)
file1.pptx preview (240 words)
Cost of Debt
xxxx xx xxxx x Interest xxxxxxxx
Debts xxx xxx xxxxxxxxx xxxxx company takes to xxxxxxx xxx xxxxxxx xxxxxxxxx they xxxx xx xxx interest on those xxxxxxxxxx So xxx xxxx xx debt xx xxxx xxxxxxxx which company xxx to xxx xx xxx borrowings xxx xxxxxxxx it xx xxxxx after tax xx it is xxx xxx deductible xxxxxxxxx
xxxx of Debt
x in PVIF xxxxxxx
The x in xxxx xxxxxxx is
xxxx of Equity (CAPM)
xxxx xx equity = (Rm-Rf)*Beta
xxxx of xxxxxxxxxxxxxxxx xxxxxxxxx xxxxxx
xxxx of Equity = Dividend per share/Current xxxxxx xxxxx of stock x Growth xxxx xx dividends.
Cost of equity is xxxxxxx xx xxx return which stockholders require xx xxxxx xxxxxxxxxxxx xx is the xxxxxxxx rate of return for xxx stockholder but it xx xxxx xxx xxx xxxxxxxx xxxx of xxxxxx can xx xxxxxxxxxx xx xxx xxxxx xxxxxxxx valuation xxxxx xxx xxxxxxx Asset xxxxxxx xxxxxx xxx the ways through which xxxx of xxxxxx is xxxxxxxxxxx
- - - more text follows - - -
file2.xls preview (37 words)
|xxxx of Debt|
|xxxxxxxx xxxx||x xx xxxx xxxxxxx|
|xxx x xx xxxx xxxxxxx isx||6.0147727404x||xxxxxx|
|Cost of xxxxxx|
|WACC to be used xx xxxxxxxx xxxx xx xxxxxx|
file3.docx preview (342 words)
Cost of Equity:-
Cost of xxxxxx xx defined xx the return xxxxx stockholders xxxxxxx on xxxxx investments. xx is the required xxxx xx xxxxxx for xxx xxxxxxxxxxx but xx xx xxxx for the company. Cost of equity can xx calculated xx xxx xxxxx xxxxxxxx xxxxxxxxx model xxx Capital xxxxx xxxxxxx models xxx xxx xxxx xxxxxxx xxxxx cost of equity is xxxxxxxxxxx
Formulas xxx xxx both xxx models xxx given xxxxxxx
k.e x (Rm-Rf)*beta
Rm x xxxxxx return
xxx xxxx free xxxxxx
CAPM, defined at xxxxxxxxxxxx. Retrieved xxxx http://www.investopedia.com/terms/c/capm.asp
xxxxxxxx xxxxxxxxx Model:-
xxx = xxxxxxxx xxx share/Current Market value xx xxxxx x Growth xxxx xx xxxxxxxxxx
xxxx xx xxxxxx
Debts xxx xxx borrowing xxxxx company xxxxx to xxxxxxx xxx xxxxxxx therefore they xxxx to xxx interest xx those xxxxxxxxxx xx the cost xx debt is xxxx interest which xxxxxxx xxx to pay xx xxx borrowings xxx xxxxxxxx it is xxxxx xxxxx tax xx xx xx xxx xxx deductible xxxxxxxx
- - - more text follows - - -
Try it before you buy it