M4a2: the cost of capital

M4 Assignment 2 Submission 

Get a plagiarism free copy of this essay from our experts
M4a2: the cost of capital
Just from $13/Page
Order Now

Assignment 2: The Cost of Capital

Assume that you are a member of an aerospace company’s newly formed executive committee that has been given the role of reviewing requests for major capital expenditures.  The committee chairman has laid the groundwork for approving requests that managers of various organizational units have submitted by reminding the group that their charge is to approve the investment opportunities that will best meet the company’s financial objective of maximizing shareholder wealth.

One of the more outspoken individuals on the committee vigorously pushed the concept that the best way to maximize shareholder wealth would be to accept all of the projects that promise a return that is higher than the long-term interest rates on bonds or bank loans. This same committee member is also insistent that  the company  turn to borrowed funds as needed to augment existing funds so that all of the projects that are attractive to the committee,  and that promise a return that is higher than the borrowing rate,  can be accepted.

Other committee members expressed concern about that approach but the time scheduled for adjourning the meeting arrived before the disagreement was resolved. You have been assigned to examine the issue and, in the spirit of taking advantage of a teaching moment, circulate a report that will bring all committee members to a common understanding of the decision criteria that should be adopted by the committee.  The chairman asked that your report address the following questions that seemed to be present during the committee meeting.

Why would the suggested approach of using the cost of new debt as the hurdle rate probably not result in maximizing the shareholders wealth?

What role does the cost of capital play in the committee’s work?

How might a company’s WACC be affected by changes in the size of its capital budget?

When and why would it be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities? 

In what situations would it be appropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities? 

For the situations in which it would be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities, what are the alternatives that might be used instead as the hurdle rate? 

Prepare a 3-4 page report in which you answer the questions as requested by the committee chairman.  Apply APA standards for writing style to your report.

By the due date assigned, deliver your assignment to the Submissions Area.

Assignment 2 Grading Criteria 

Maximum Points

Explained why using the cost of new debt as the hurdle rate probably would not result in maximizing the shareholders wealth. 20

Explained the role that the cost of capital should play in the committee’s work. 16

Described how a company’s WACC might be affected by changes in the size of its capital budget. 16

Explained when and why it would be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities. 12

Identified the situations in which it would be appropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities. 12

Explained the alternatives that might be used as the hurdle rate for situations in which it would be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities. 12

Writing Craftsmanship, APA and Ethical Scholarship. 12

Total: 100

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 30% with the discount code ESSAYHELP