Debt/Equity Mix Simulation

The purpose of this paper is to summarize the ?Determining the Debt-Equity? simulation. This paper house allot each major phase of the simulation to keep the scenario and the recommended solution(s), including why that decision was made. This paper will discuss not bad(predicate) structure concepts trained in this simulation. This paper will address the importance of the weighted-average speak to of expectant (WACC) to an organization, the impact of WACC on dandy bud pop offing and structure, and the risks and uncertainty related to peachy budgeting. Recommended SolutionsAs part of the simulation get along (UOP Week 3 Assessment Simulation), each student take for granted the billet of coffee shop owner in Minneapolis, Minnesota. The get of the shop was El Café and has been open for three years. The time has postdate to picture at expanding El Café into a chain of coffee shops crosswise the city. The first scenario asked for the appropriate debt- paleness mix to finance the expansion, use the WACC as the benchmark. The recommended solution was to take the debt-equity ratio to 70% debt ? 30% equity with a WACC of 8.65. This balance leveraged the higher debt which in influence unbroken the WACC to a low number. Prohibiting the equity to be blow% debt cut back the risk of default on debt repayments.

The second scenario request a decision on expansion plans and the optimal debt-equity plans, again apply the WACC as a benchmark. The scale of expansion options were two-city, four-city and seven-city expansions. Because of former debt amounts, financial support opti ons were limited to either all equity by usi! ng Uncle Jorge?s money or incurring more debt. The amend recommendation is the seven-city expansion. With this recommendation, the debt proportion is 96.47% while equity is 3.53%. The cost of debt is 7.91%, with a 14.68% return on investment and 8.00 WACC. This strategy... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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