Capital Structure Decision and the Cost of Capital

Capital Structure Decision and the Cost of Capital

In simple words, the capital structure is the combination of debt and equity used to finance a company. The background readings of this Module provide plenty of information regarding both the issue of the capital structure decision and the concept of the weighted average cost of capital.

For the Module 4 Case Assignment, please consider the following three companies:

i) eBay (NasdaqGS: EBAY),

ii) The Clorox Company (NYS: CLX), and

iii) Alaska Air Group, Inc. (NYS: ALK).

Ebay Inc. (2012). Investor relations. Retrieved May, 2012, from http://investor.ebay.com

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), please use the following websites: http://ca.finance.yahoo.com/q?s=EBAY&ql=0 ; http://ca.finance.yahoo.com/q/ks?s=EBAY

The Clorox Company (2012). Investors. Retrieved May, 2012, from http://investors.thecloroxcompany.com/

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), please use the following websites: http://ca.finance.yahoo.com/q?s=CLX&ql=0 ; http://ca.finance.yahoo.com/q/ks?s=CLX

Alaska Air Group, Inc. (2012). Investor relations. Retrieved May, 2012, from http://phx.corporate-ir.net/phoenix.zhtml?c=109361&p=irol-IRHome

To access company background information, ratios analysis (e.g., debt/equity ratio, profitability ratios, etc.), and other information (e.g., company beta), please use the following websites: http://ca.finance.yahoo.com/q?s=ALK&ql=1 ; http://ca.finance.yahoo.com/q/ks?s=ALK

To complete Module 4 Case Assignment, please explore the websites of the above companies, read the information in the background material, look for more, and then write a 5 pages report for your professor by responding to the following tasks:

1) Based on the readings of the Module, and upon reviewing total debt/equity ratios, company betas, profitability ratios, company revenue, assets, and liabilities, and the nature of the operations of the companies including the nature of their customers and products, what would you recommend should the capital structure (total liabilities or debt and equity proportions) be for each of the three companies?

In your report, please include the information together with other information that you think is necessary to above question:

?The nature of the business in brief (all three companies)

?Total current assets and long-term assets of all three companies

?Total current liabilities and long-term liabilities of all three companies

?Revenue of each company

?Total debt/equity ratios of all three companies

?Profit margin, return on assets, and return on equity ratios of all three companies

?Betas of all three companies

?The riskiness of all three companies in brief (e.g., the higher the beta, the higher the risk)

?The advantages and disadvantages of debt over equity financing

2) What do you perceive you have learnt in Module 4 Case Assignment? Which of the following learning objectives do you feel you have mastered?

?Explain and demonstrate the use of bonds and other debt instruments in financing the firm’s capital plans

?Discuss the advantages and disadvantages of debt financing and of equity financing

?Identify and discuss the concept of optimal capital structure

Please provide your evaluation of the Module 4 Case Assignment in brief.

NOTE: Please note that your report/assignment will not be accepted without proper citations and references. You must use the sources from the background material together with the sources you find your own. It is also REQUIRED that you answer all the questions related to learning outcomes.

Case Assignment Expectations:

In Module 4 Case Assignment, you are expected to:

?Describe the purpose of the report and conclusion.

?Answer the case assignment questions clearly and provide necessary details. Your very first paragraph should include a direct answer to the assignment question, with the body of your paper focused on defending your answer. Please review Tips for Good Writing [https://cdad.trident.edu/CourseHomeModule.aspx?course=56&term=92&module=3&page=custom1] and a guideline [http://www.trident.edu/Media/Default/pdf/Well-Written-Paper.pdf] to write a well-structured paper.

?Provide a quality argument; that is, no poor sentence structure, no spelling and grammar mistakes or run-on sentences.

?Provide citations to support your argument and references on a separate page. Please use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].

?Answer all the case assignment questions in an essay format instead of point format. Please do not type questions in the paper.

?Type and double space the paper.

? The following criteria will also be used to assess your paper:

>Precision: Does the paper address the question(s) or task(s)?

>Breadth: Is the full breadth of the subject, i.e., all the keys to the assignment, addressed?

>Depth: Does the paper/report address all elements of the topic in sufficient depth? Does it include and apply the background readings and other background resources? Are they included as references?

>Critical thinking: Are the concepts of this module applied accurately, logically, and relevantly?

>Organization: Is the paper organized in a coherent and systematic manner? Are headings included in all papers greater than 2 pages?

>Clarity: Is the writing clear and the concepts articulated properly? Are paraphrasing and synthesis of concepts the primary means of response to the questions, or are thoughts conveyed through excessive use of quotations?