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 Debt
xxxx of xxxx = Interest Payments
xxxxx xxx the borrowing which xxxxxxx xxxxx to xxxxxxx xxx company xxxxxxxxx xxxx have xx pay xxxxxxxx on xxxxx xxxxxxxxxx So xxx xxxx of debt xx that xxxxxxxx xxxxx company has xx pay xx xxx borrowings and xxxxxxxx xx is xxxxx after xxx as it is the tax xxxxxxxxxx expense.
xxxx xx xxxx
x xx xxxx xxxxxxx
xxx x in xxxx formula xx
Cost xx xxxxxxxxxxxxx
Cost of equity x xxxxxxxxxxxxx
Cost xx xxxxxxxxxxxxxxxx Valuation xxxxxx
Cost of xxxxxx = xxxxxxxx per xxxxxxxxxxxxx Market value xx xxxxx + xxxxxx xxxx of xxxxxxxxxx
Cost of equity is defined as xxx return which xxxxxxxxxxxx require xx their xxxxxxxxxxxx It xx xxx required rate of xxxxxx xxx xxx xxxxxxxxxxx xxx xx xx xxxx xxx the xxxxxxxx Cost of equity can xx xxxxxxxxxx in xxx xxxxx Dividend valuation xxxxx and Capital xxxxx xxxxxxx xxxxxx are the ways through which xxxx xx xxxxxx xx calculated.
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file2.xls preview (37 words)
|xxxx xx xxxx|
|xxxxxxxx xxxx||x xx xxxx formula|
|The x in xxxx xxxxxxx xxx||xxxxxxxxxxxxx||10.50%|
|xxxx xx xxxxxx|
|xxxx to xx xxxx xx xxxxxxxx rate of return|
file3.docx preview (342 words)
xxxx xx xxxxxxxx
Cost xx equity is defined as the xxxxxx xxxxx stockholders require xx their investments. xx is the xxxxxxxx rate of return for the xxxxxxxxxxx xxx it xx xxxx xxx the company. Cost xx xxxxxx xxx xx xxxxxxxxxx in xxx ways. Dividend xxxxxxxxx model xxx xxxxxxx xxxxx xxxxxxx models are xxx ways xxxxxxx xxxxx cost xx xxxxxx is calculated.
Formulas for the xxxx the models are xxxxx below:-
xxx = xxxxxxxxxxxx
xx = Market xxxxxx
Rf= xxxx xxxx xxxxxx
xxxxx defined at investopediax Retrieved xxxx http://www.investopedia.com/terms/c/capm.asp
Dividend xxxxxxxxx Model:-
k.e = Dividend xxx share/Current Market xxxxx of stock + xxxxxx xxxx of xxxxxxxxxx
Cost xx xxxxxx
Debts are the borrowing xxxxx xxxxxxx takes xx xxxxxxx xxx xxxxxxx therefore xxxx have to pay interest on those xxxxxxxxxx xx xxx cost xx debt xx that interest which company xxx to xxx on the xxxxxxxxxx xxx xxxxxxxx it xx xxxxx after xxx as it is the xxx deductible xxxxxxxx
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