Project #42311 - Finance M4C

The capital structure decision and the cost of capital

In simple words, the capital structure is the combination of debt and equity used to finance a company. The Background reading for this module provides plenty of information regarding both the issue of the capital structure decision and the concept of the weighted average cost of capital.

For the Assignment, consider the following three companies:

  1. eBay (NasdaqGS: EBAY)
  2. The Clorox Company (NYSE: CLX)
  3. Alaska Air Group Inc. (NYSE: ALK)

Ebay Inc. (2012). Investor relations. Retrieved May 2012 from http://investor.ebay.com

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: http://ca.finance.yahoo.com/q?s=EBAY&ql=0 ; http://ca.finance.yahoo.com/q/ks?s=EBAY

The Clorox Company (2012). Investors. Retrieved May 2012 from http://investors.thecloroxcompany.com/

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: http://ca.finance.yahoo.com/q?s=CLX&ql=0 ; http://ca.finance.yahoo.com/q/ks?s=CLX

Alaska Air Group, Inc. (2012). Investor relations. Retrieved May 2012 from http://phx.corporate-ir.net/phoenix.zhtml?c=109361&p=irol-IRHome

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), use the following websites: http://ca.finance.yahoo.com/q?s=ALK&ql=1 ; http://ca.finance.yahoo.com/q/ks?s=ALK

Assignment

To complete the  Assignment, explore the websites of the above companies, read the information in the background material, search for more information, and then write a 5-page report responding to the following tasks:

  1. Based on the readings of the module and upon reviewing total debt/equity ratios, company betas, profitability ratios, company revenue, assets, and liabilities, and the nature of the operations of the companies, including the nature of their customers and products, what would you recommend to be the capital structure (total liabilities or debt and equity proportions) for each of the three companies?

    In your report, include the information along with other information that you think is necessary to answer the above question. Consider the following:

    • The nature of the business in brief (all three companies).
    • Total current assets and long-term assets of all three companies.
    • Total current liabilities and long-term liabilities of all three companies.
    • Revenue of each company.
    • Total debt/equity ratios of all three companies.
    • Profit margin, returns on assets, and return on equity ratios of all three companies.
    • Betas of all three companies.
    • The riskiness of all three companies in brief (e.g., the higher the beta, the higher the risk).
    • The advantages and disadvantages of debt over equity financing.

Note: Your report/assignment will not be accepted without proper citations and references. You must use the sources from the background material together with the sources you find on your own. It is also required that you answer all the questions related to learning outcomes.

Assignment Expectations

In the Module 4 Case Assignment, you are expected to:

  • Describe the purpose of the report and provide a conclusion.
  • Answer the Case Assignment questions clearly and provide necessary details. The first paragraph should include a direct answer to the assignment question, with the body of the paper focused on defending your answer. 
  • Provide a quality argument—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
  • Provide citations to support your argument and references on a separate page. Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
  • Answer all the Case Assignment questions in an essay format. Do not type questions in the paper.
  • Type and double-space the paper.
  • Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions.  In finance, in addition to being able to write well, it’s important to present information in a professional manner and to analyze financial information.  This is part of the assignment expectations and will be considered for grading purposes.

Subject Business
Due By (Pacific Time) 10/13/2014 12:00 am
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