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Purpose of Assignment
Students should understand corporate risk and be able to use the
financial models learned in the class to evaluate and calculate a
company's weighted average cost of capital and use the analysis to make
company investment decisions.
About Your Signature Assignment
This signature assignment is designed to align with specific program
student learning outcome(s) in your program. Program Student Learning
Outcomes are broad statements that describe what students should know
and be able to do upon completion of their degree. The signature
assignments may be graded with an automated rubric that allows the
University to collect data that can be aggregated across a location or
college/school and used for program improvements.
Assignment Steps
Resources: Tutorial help on Excel® and Word functions can be found on
the Microsoft®Office website. There are also additional tutorials via the
web that offer support for office products.
Scenario: Wilson Corporation (not real) has a targeted capital structure
of 40% long term debt and 60% common stock. The debt is yielding 6%
and the corporate tax rate is 35%. The common stock is trading at $50
per share and next year's dividend is $2.50 per share that is growing by
4% per year.
Prepare a minimum 700-word analysis including the following:
• Calculate the company's weighted average cost of capital. Use the
dividend discount model. Show calculations in Microsoft® Word.
• The company's CEO has stated if the company increases the amount of
long term debt so the capital structure will be 60% debt and 40% equity,
this will lower its WACC. Explain and defend why you agree or
disagree. Report how would you advise the CEO.
Format your paper consistent with APA guidelines.