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.
Cost and Debt Equity(WORD+EXCEL+POWERPOINT) ATTACHED A+++Tutorial Use As Guide
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file1.xls preview (37 words)
|xxxx of Debt|
|Interest xxxx||x in xxxx formula|
|The x xx PVIF xxxxxxx isx||6.0147727404x||xxxxxx|
|xxxx of Equity|
|WACC to be used as required xxxx of xxxxxx|
file2.docx preview (342 words)
xxxx of Equity:-
Cost xx equity xx xxxxxxx xx the return which stockholders require xx their investments. xx is xxx required rate of return xxx xxx xxxxxxxxxxx but it is cost for xxx company. Cost of xxxxxx can be xxxxxxxxxx in xxx xxxxx Dividend xxxxxxxxx xxxxx xxx Capital xxxxx xxxxxxx xxxxxx xxx xxx xxxx through xxxxx cost xx equity xx calculated.
Formulas xxx xxx xxxx xxx models xxx xxxxx below:-
xxx = xxxxxxxxxxxx
Rm x Market xxxxxx
Rf= Risk free return
CAPM, xxxxxxx at xxxxxxxxxxxxx Retrieved from xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Dividend xxxxxxxxx xxxxxxx
xxx x xxxxxxxx xxx xxxxxxxxxxxxx Market xxxxx of xxxxx + xxxxxx rate of dividends.
Cost xx Debt:-
Debts xxx xxx xxxxxxxxx which xxxxxxx takes xx xxxxxxx the xxxxxxx xxxxxxxxx they xxxx xx pay interest xx those xxxxxxxxxx xx the xxxx xx debt is xxxx interest which company has xx xxx xx the borrowings xxx xxxxxxxx it is taken after tax xx xx is xxx tax xxxxxxxxxx expense.
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file3.pptx preview (240 words)
xxxx xx xxxx
xxxx xx xxxx x Interest xxxxxxxx
xxxxx xxx the borrowing which xxxxxxx xxxxx xx xxxxxxx xxx xxxxxxx therefore they xxxx to pay xxxxxxxx on those xxxxxxxxxx xx the cost xx xxxx is that interest which xxxxxxx has to xxx on the xxxxxxxxxx and normally it xx taken xxxxx xxx xx it is xxx tax xxxxxxxxxx expense.
Cost of Debt
x xx xxxx xxxxxxx
The x in xxxx formula xx
xxxx xx Equity (CAPM)
Cost of xxxxxx = xxxxxxxxxxxxx
Cost xx xxxxxxxxxxxxxxxx Valuation Model)
Cost xx Equity x Dividend xxx xxxxxxxxxxxxx xxxxxx xxxxx xx xxxxx x Growth xxxx of xxxxxxxxxx
Cost of equity xx xxxxxxx xx the xxxxxx which stockholders require xx their xxxxxxxxxxxx It is xxx xxxxxxxx rate of xxxxxx for the stockholder but xx xx xxxx for the company. xxxx xx xxxxxx can be xxxxxxxxxx in xxx xxxxx xxxxxxxx valuation xxxxx xxx xxxxxxx xxxxx xxxxxxx xxxxxx xxx the ways through xxxxx cost xx xxxxxx is calculated.
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