750 - 1,000 words. Please use APA Format, which makes your reference URL's mandatory on the...

Question

750 - 1,000 words. Please use APA Format, which makes your reference URL's mandatory on the Reference Page of the assignment. This is critically important. Thank you.

Assignment Details

Assignment Description

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.

For assistance with your assignment, please use your text, Web resources, and all course materials.

Robert · Accepted Answer

Capital Structure: 
The arrangements of corporation’s wealth, through equity’s (common and preferred 
stock), debt (including bonds and loans) and mixture securities (such as convertible debt and 
preferred shares) are included in the capital structure. 
Equity funding is providing by the stockholders. Debt funding is providing by banks or 
bondholders who, correspondingly, obtain loan agreements and publicly transacted bonds in 
return for their money. The capital structure demonstrations the arrangement of a group’s 
liabilities as it displays who has a right on the collection's assets and whether it is a debt or equity 
claim.  
  For running the company in a long term and short term, it is important to financing the 
company; hence capital structure is the prearrangement of capital from different sources so that 
the long term funds desirable for the commercial are raised up. Capital structure denotes to the 
parts or mixtures of equity share capital, preference share capital, debentures, long term loans, 
retained earnings and other long term foundations of capitals in the total amount of capital which 
a companies should raise the funds to run its commercial. 
Reference: 
http://lexicon.ft.com/Term?term=corporate-capital-structure 
WACC: 
 Weighted Average cost of capital (WACC) = We*Ke + Wd*Kd*(1-T) 
 Where, 
 We = weight of equity 
http://lexicon.ft.com/Term?term=corporate-capital-structure
 Wd = weight of debt 
 Ke = cost of equity 
 Kd= cost of debt 
 T= Tax rate 
Ke= Rf + (Rm-Rf)*Beta 
Where,

750 - 1,000 words. Please use APA Format, which makes your reference URL's mandatory on the Reference Page of the assignment. This is critically important. Thank you. Assignment Details Assignment...