Cost of Debt and Equity

Due Monday, 9/23/13 at 6pm

 

The manager of Sensible Essentials conducted an excellent seminar explaining debt and equity financing and how firms should analyze their cost of capital. Nevertheless, the guidelines failed to fully demonstrate the essence of the cost of debt and equity, which is the required rate of return expected by suppliers of funds.

You are the Genesis accountant and have taken a class recently in financing. You agree to prepare a PowerPoint presentation of approximately 6–8 minutes using the examples and information below:

  1. Debt: Jones Industries borrows

    $600,000

    for 10 years with an annual payment of $

    100

    ,000. What is the expected interest rate (cost of debt)?

  2. Internal common stock: Jones Industries has a beta of 1.39. The risk-free rate as measured by the rate on short-term US Treasury bill is 3 percent, and the expected return on the overall market is 12 percent. Determine the expected rate of return on Jones’s stock (cost of equity). Here are the details:

$600,000

$2,000,000

Jones Total Assets

$2,000,000

Long- & short-term debt

Common internal stock equity

$400,000

New common stock equity

$1,000,000

Total liabilities & equity

Develop a 10–12-slide presentation in PowerPoint format. Perform your calculations in an Excel spreadsheet. Cut and paste the calculation into your presentation. Include speaker’s notes to explain each point in detail. Apply APA standards to citation of sources.

 

40

40

20

100

Assignment 2 Grading Criteria Maximum Points
Calculated the expected interest rate (cost of debt).
Calculated the expected rate of return on Jones’s stock (cost of equity).
Wrote in a clear, concise, and organized manner; demonstrated ethical scholarship in accurate representation and attribution of sources; displayed accurate spelling, grammar, and punctuation.
Total:
Are you stuck with your online class?
Get help from our team of writers!