Project #42312 - Finance M4S

The capital structure decision and the cost of capital

Balance Sheet and Market Value of Your Company's Liabilities and Equity

Refer to your company's most recent balance sheet. Review the “liabilities and equity side” of the balance sheet.

  1. Short-term liabilities (or debt) and long-term liabilities

    Find out from the balance sheet of the company the total of the short-term liabilities (also called “short-term debt”) and long-term liabilities (also called “long-term debt”).

  2. Equity

    The market value of equity is by definition equal to the number of shares outstanding times the market price per share. Find out the number of shares outstanding and the recent price per share. Then multiply one by the other in order to find the market value of equity of your company. If you have a problem finding out the number of shares outstanding, you may go to http://finance.google.com and insert the name of your company. The market value of equity of your company is what is called “Mkt Cap,” or market capitalization. An alternative site is http://finance.yahoo.com where you may insert your company's name and get the market capitalization.

Project

Once you have this information, prepare a 2- to 3-page paper with the following:

  1. Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt-to-equity ratio (total liabilities divided by total equity). Show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities, use just short-term liabilities and long-term liabilities). Show all of your work and calculations.
  2. Give your recommendations as to whether or not you consider these ratios to be too small or too large. Should your SLP company increase its debt or take steps to pay off its debt?
  3. Compute the debt-to-equity ratios for two other companies in the same industry as your SLP company. Which of these three companies has the highest debt-to-equity ratio, and why do you think it chose to have a relatively high ratio? Which of these three companies has the lowest debt-to-equity ratio, and why do you think it chose to have a relatively lower ratio?

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

You are expected to:

  • Describe the purpose of the paper and provide a conclusion.
  • Answer the SLP questions clearly and provide necessary details and calculations. 
  • Write clearly and correctly—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 SLP 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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