Add to uploaded paper answers to this scenario.
Respond to the following scenario with your thoughts, ideas,
and comments. Be substantive and clear, and use research to
reinforce your ideas.
Mary Francis has just returned to her office after attending
preliminary discussions with investment bankers. Her last meeting
regarding the intended
capital structure of Apix went well, and she calls you into
her office to discuss the next steps.
“We will need to determine the required return for our
intended project so that we have a decision criteria defined for
the project,” she says.
“Do you have the information I need to describe capital
structure and to calculate the weighted average cost of capital
(WACC)?” you ask.
“I do,” she smiles. “We can determine the target WACC for
Apix Printing Inc., given these assumptions,” she says as she hands
you a piece of paper that
says the following:•Weights of 40% debt and 60% common equity
(no preferred equity)•A 35% tax rate•Cost of debt is 8%•Beta of the
company is 1.5•Risk-free rate is 2%•Return on the market is 11%
“Great,” you say. “Thanks.”
“Be sure to indicate how these costs of capital might be used
to determine the feasibility of the capital project,” Mary says. “I
want your
recommendation about which is more appropriate to apply to
project evaluation, too. Let me know what you think.”
“One more thing,” she says as she stands up to signal the end
of the meeting. “You did a good job with the explanations that you
provided Luke the
other day. Would you have time to define marginal cost of
capital for me so I can include it in my discussions with
investors? You seem to have a knack
for making things accessible to nonfinancial folks.”
“No problem,” you say. “I’m glad my explanations are so
useful!”
For this assignment, complete the following:•Describe capital
structure.•Determine the WACC given the above assumptions.•Indicate
how these might be useful to determine the feasibility of the
capital project.•Recommend which is more appropriate to apply to
project evaluation.•Define marginal cost of capital.
Please submit your assignment.
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