Debt/Equity Mix Simulation

The purpose of this penning is to t totallyy the ?Determining the Debt-Equity? simulation. This paper entrust allot each major phase of the simulation to approve the scenario and the recommended solution(s), including why that decision was made. This paper will discuss great structure concepts turn toed in this simulation. This paper will address the importance of the weighted-average speak to of big(p) (WACC) to an organization, the impact of WACC on working dandy bud pop dispatch and structure, and the risks and uncertainty related to capital bud following. Recommended SolutionsAs part of the simulation get along (UOP Week 3 Assessment Simulation), each school-age child take for granted the intent of coffee deceive owner in Minneapolis, Minnesota. The get of the shop was El Café and has been open for cardinal years. The time has postdate to facet at expanding El Café into a chain of coffee shops crossways the city. The first scenario asked for the appropriate debt- impartiality intermixture to finance the involution, victimization the WACC as the benchmark. The recommended solution was to take the debt- impartiality dimension to 70% debt ? 30% equity with a WACC of 8.65. This balance leveraged the high debt which in influence unbroken the WACC to a low number. Prohibiting the equity to be blow% debt bring down the risk of default on debt repayments.

The second scenario request a decision on expansion plans and the optimal debt-equity plans, again utilise the WACC as a benchmark. The racing shell of expansion options were two-city, four-city and seven-city expansions. Because of former debt amounts, backing options were limited to either all equity by using Uncle Jorge?s money or incurring more debt. The prepare recommendation is the seven-city expansion. With this recommendation, the debt proportion is 96.47% composition equity is 3.53%. The cost of debt is 7.91%, with a 14.68% return on investment funds and 8.00 WACC. This strategy... If you want to get a full essay, order it on our website: Orderessay

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