Capital Structure and Cost of Capital project

Capital Structure and Cost of Capital project

1. Purpose of the project:

In this project, you are supposed to be a financial manager working for a big corporation and you
have to apply the knowledge obtained from the financial management (FINC6352) course. You
will determine the cost of debt, cost of preferred stock, cost of common equity, capital structure,
and the weighted average cost of capital (WACC) for a publicly traded company of your choice.

2. Outline for the project:
1. Cost of capital components
– Estimate the firm’s before-tax and after-tax component cost of debt;
– Estimate the firm’s component cost of preferred stock;
– Use three approaches (CAPM, DCF, bond-yield-plus-risk-premium) to estimate the
component cost of common equity of the firm. Include your own calculation of the beta
for the company.

. Estimate Capital Structure
– Estimate the firm’s weights of debt, preferred stock, and common stock using the firm’s
balance sheet (book value)
– Estimate the firm’s weights of debt, preferred stock, and common stock using the market
value of each capital component
– Calculate the firm’s weighted average cost of capital (WACC) with both structures
3. Other information regarding the project:

. Your project should be well-organized and typed in a Word document, but you must
attach the Excel file with your report. The style and organization part of the project account
for 10 percent of the grade.
.Information obtained in this MP will be used in other mini projects so any feedback
received on the calculation of WACC must be incorporated for the next Mini project.