FIN6631 Troy University Harry Davis Industries Finance WACC Questions There are Finance 6631 WACC Assignments. The purpose of this additional questions is

FIN6631 Troy University Harry Davis Industries Finance WACC Questions There are Finance 6631 WACC Assignments. The purpose of this additional questions is to measure problem solving skills for students.

As you can see from each question, there are four areas to measure: define problem, identify strategies, propose solution or hypothesis, and evaluate potential solutions.

There is no set answers. So, please try your best to answer each question based on above-mentioned four areas.

As long as you answer each question based on four areas, you will receive points for additional questions.

Also, please submit the answers to additional questions through AQUA system separately.

You can find the Finance 6631 WACC Assignments along with AQUA system submission link within “Assignments” link of the CANVAS course shell. Finance 6631 WACC Assignments are located at the bottom once you enter into the “Assignments” link.

It will be graded by SCOB, not by me, for recording purposes. Finance 6631 Assignment
During the last few years, Harry Davis Industries has been too constrained by the
high cost of capital to make many capital investments. Recently, though, capital costs
have been declining, and the company has decided to look seriously at a major
expansion program proposed by the marketing department. Mary Simpson who is an
assistant to Leigh Jones, the financial vice president is asked to estimate Harry Davis’s
cost of capital. Jones provides Simpson with the following data.
1.
The firm’s tax rate is 40%.
2.
The firm has 10% annual coupon bonds with 15 years remaining to maturity.
The current price of the bond is $1, 096.26. The bond’s yield-to-maturity is 8.82%.
3.
The firm’s balance sheet shows $100 million long-term debt and $300 million
common equity.
Simpson estimates the market risk premium as the historical average return on stocks
minus the current return on Treasury bonds and obtains a 15.4% of the cost of
common stock based on the CAPM.
Simpson calculates the firm’s weighted average cost of capital (WACC) as follows:
Weight of long-term debt is .25 (=100/400)
Weight of common equity is .75 (=300/400)
WACC = .25 x 10% x (1 – .4) + .75 x 15.4% = 13.05%
1.
Find problems inherent in Simpson’s WACC calculation.
2.
What can you suggest to solve problems found in Question 1?
3.
Simpson used the CAPM to estimate the cost of common stock. What can you
propose to get the best estimate for the cost of common stock?
4.
How confident can you be with the WACC based on solutions you suggested
through the evaluative process in terms of the firm’s divisions and projects? What
issues should be considered?
FinGrad PSolving Rubric
The attached rubrics reflect the areas on which your case work will be assessed in
order for the Sorrell College of Business to complete program assessments.
In addition, your instructor may have specified other explicit expectations for this
case.
Attachments
•
FIN Graduate Problem Solving Rubric (FINGradPSolving).pdf

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