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 $2,000,000
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.
Answer file is attached. Feel free to contact for any further assistance.
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Debt and xxxxxx xxxxxxxxx
xxxx xx Debt and Equity
Prepared by xxxxxx xxxx
x
Cost of Debt
Example xx Debt xxxxxxxxxxxxxxx Jones Industries xxxxxxx $600,000 xxx 10 xxxxx xxxx xx annual payment xx xxxxxxxxx What xx xxx xxxxxxxx xxxxxxxx xxxx xxxxx of debt)?
xxxxxxxx xx xxxxxx xxxx
2
xxx an xxxxxxxxxx xx be xxxxxxxxxxx the xxxxxxxx xxxxxx on capital xxxx be xxxxxxx xxxx xxx xxxx of capital. The xxxx of capital xx xxx xxxx xx return that capital xxxxx xx xxxxxxxx xx xxxx in an xxxxxxxxxxx xxxxxxxxxx xx equivalent risk. If a xxxxxxx is of xxxxxxx risk to x company's xxxxxxx xxxxxxxx activities it is xxxxxxxxxx xx use xxx xxxxxxxxx average xxxx of xxxxxxx xx a xxxxx for the xxxxxxxxxxx x xxxxxxxxx securities xxxxxxxxx include both debt xxx xxxxxxx xxx xxxx xxxxxxxxx xxxxxxxxx xxxx xxx
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