Weighted Average Cost of Capital

 Purpose of Assignment

Students should understand the mechanics in calculating a company’s weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments.

Assignment Steps 

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products. 

Scenario: You work for an investment banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor’s capital structure is as follows: 

Source of Capital            Market Value
          Bonds                             $10,000,000
 Preferred Stock                $ 2,000,000
 Common Stock                  $ 8,000,000

To finance the investment, Vestor has issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. 

Prepare your analysis in a minimum of 150-200 words in Microsoft® Word.

Use Microsoft® Word tables in the presentation if you choose. 

**SHOW ALL CALCULATIONS AND ANALYSIS IN THE PRESENTATION**

Format your assignment consistent with APA guidelines. 

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