Given a company’s capital requirements, design an appropriate capital structure using preferred and/or common stock, long-term debt, bond classes, bond ratings, and security valuation.
Given the term structure of interest rates, the particulars of corporate income tax theory, and the trade off between risk and return, demonstrate the risk and return for both individual assets and portfolios of assets.
Given a company’s current capital structure and projected capital needs, calculate the weighted average cost of capital (WACC).
The Weighted Average Cost of Capital (WACC) for a firm can be calculated or found through research. Select two firms in the same industry. The industry may be that in which you currently work or it may be an industry in which you are interested. Calculate or find the WACC for the two firms. How do the WACCs compare? Are the WACCs what you would expect? What causes the differences between the two firms’ WACCs?
Our second discussion topic concerns the calculation of stock values using the Capital Asset Pricing Model (CAPM). We will start with a discussion of risk and work towards practical application of the model. The textbook provides a list of betas for a selection of stocks. Choose a few firms from that list and discuss whether the betas are what you would expect. Be sure to explain why or why not.
