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
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file1.pptx preview (240 words)
xxxx of xxxx
xxxx xx xxxx x Interest xxxxxxxx
Debts are the xxxxxxxxx xxxxx xxxxxxx xxxxx to finance the company xxxxxxxxx they xxxx to pay xxxxxxxx on xxxxx borrowing. xx the cost xx debt is that interest which xxxxxxx has to pay xx the borrowings and normally it is xxxxx xxxxx tax as it is the tax xxxxxxxxxx expense.
Cost xx Debt
x in PVIF formula
The x in PVIF xxxxxxx xx
Cost of Equity (CAPM)
Cost xx xxxxxx x (Rm-Rf)*Beta
Cost of xxxxxxxxxxxxxxxx Valuation xxxxxx
xxxx of xxxxxx = Dividend xxx share/Current xxxxxx xxxxx of xxxxx x xxxxxx rate of dividends.
Cost xx equity xx defined xx the xxxxxx xxxxx stockholders xxxxxxx xx xxxxx xxxxxxxxxxxx xx xx xxx xxxxxxxx rate of return for the xxxxxxxxxxx xxx xx is cost xxx the company. Cost of equity can be calculated in xxx xxxxx Dividend xxxxxxxxx xxxxx and xxxxxxx Asset Pricing models are xxx ways xxxxxxx xxxxx xxxx of equity is calculated.
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file2.xls preview (37 words)
|xxxx xx Debt|
|xxxxxxxx xxxx||x xx xxxx formula|
|xxx x xx xxxx xxxxxxx is||6.0147727404x||xxxxxx|
|xxxx of Equity|
|xxxx to xx xxxx as required xxxx xx xxxxxx|
file3.docx preview (342 words)
Cost of Equity:-
xxxx xx xxxxxx is xxxxxxx xx the xxxxxx xxxxx stockholders require on their xxxxxxxxxxxx It is xxx xxxxxxxx xxxx of return xxx the xxxxxxxxxxx xxx it xx xxxx xxx the company. Cost xx xxxxxx xxx xx xxxxxxxxxx xx two xxxxx Dividend xxxxxxxxx xxxxx and xxxxxxx Asset xxxxxxx xxxxxx xxx the xxxx xxxxxxx which cost xx xxxxxx xx xxxxxxxxxxx
xxxxxxxx for xxx xxxx xxx models xxx xxxxx below:-
xxx x xxxxxxxxxxxx
xx x xxxxxx xxxxxx
xxx xxxx xxxx xxxxxx
CAPM, xxxxxxx at xxxxxxxxxxxx. Retrieved from xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxx xxxxxxxxx Model:-
k.e = xxxxxxxx xxx xxxxxxxxxxxxx Market value of xxxxx x xxxxxx xxxx xx xxxxxxxxxx
Cost xx Debt:-
xxxxx are the borrowing xxxxx xxxxxxx xxxxx xx xxxxxxx the xxxxxxx therefore xxxx xxxx xx pay interest xx those xxxxxxxxxx xx the cost xx debt is that xxxxxxxx xxxxx company has to pay on xxx borrowings xxx xxxxxxxx it xx xxxxx xxxxx tax xx xx xx xxx tax deductible xxxxxxxx
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