Assignment:
Purpose
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.
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.
Format your assignment consistent with APA guidelines.