Debt/Equity Mix Simulation

The purpose of this paper is to summarize the ?Determining the Debt-Equity? simulation. This paper set up allot each major phase of the simulation to entertain the scenario and the recommended solution(s), including why that decision was made. This paper will discuss bang-up structure concepts dispenseed 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 ceiling letter bud pop offing and structure, and the risks and uncertainty related to capital budgeting. Recommended SolutionsAs part of the simulation get along (UOP Week 3 Assessment Simulation), each student take for granted the office staff of coffee crap owner in Minneapolis, Minnesota. The get of the shop was El Café and has been open for three years. The time has postdate to direct at expanding El Café into a chain of coffee shops crossways the city. The first scenario asked for the appropriate debt- faithfulness mix to finance the expansion, development 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 the risk of default on debt repayments.

The second scenario request a decision on expansion plans and the optimal debt-equity plans, again utilize the WACC as a benchmark. The scale of expansion options were two-city, four-city and seven-city expansions. Because of former debt amounts, financing options were limited to either all! equity by using Uncle Jorge?s money or incurring more debt. The do 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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