Debt/Equity Mix Simulation

The purpose of this paper is to summarize the ?Determining the Debt-Equity? simulation. This paper declare oneself allot each major phase of the simulation to require the scenario and the recommended solution(s), including why that decision was made. This paper will discuss smashing structure concepts steered in this simulation. This paper will address the importance of the weighted-average speak to of expectant (WACC) to an organization, the impact of WACC on superior bud pop offing and structure, and the risks and uncertainty related to large(p) budgeting. Recommended SolutionsAs part of the simulation get along (UOP Week 3 Assessment Simulation), each student take for granted the purpose of coffee workshop owner in Minneapolis, Minnesota. The get of the shop was El Café and has been open for three years. The time has postdate to looking at at expanding El Café into a chain of coffee shops crosswise the city. The first scenario asked for the appropriate debt - beauteousness mix to finance the expansion, apply the WACC as the benchmark. The recommended solution was to take the debt-equity ratio to 70% debt ? 30% equity with a WACC of 8.65. This balance leveraged the higher debt which in influence unplowed the WACC to a low number. Prohibiting the equity to be blow% debt cut down the risk of default on debt repayments.

The second scenario request a decision on expansion plans and the optimal debt-equity plans, again victimization the WACC as a benchmark. The scale of expansion options were two-city, four-city and seven-city expansions. Because of former debt am ounts, financial support options were limit! ed to either all equity by using Uncle Jorge?s money or incurring more debt. The better recommendation is the seven-city expansion. With this recommendation, the debt proportion is 96.47% while equity is 3.53%. The cost of debt is 7.91%, with a 14.68% return on investment and 8.00 WACC. This strategy... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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