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QUESTION

Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock.

Scenario: Wilson Corporation (not real) has a targeted capital structure of 40% long term debt and 60% common stock. The debt is yielding 6% and the corporate tax rate is 35%. The common stock is trading at $50 per share and next year's dividend is $2.50 per share that is growing by 4% per year.

Prepare a minimum 700-word analysis including the following:

  • Calculate the company's weighted average cost of capital. Use the dividend discount model.  Show calculations in Microsoft® Word.
  • The company's CEO has stated if the company increases the amount of long term debt so the capital structure will be 60% debt and 40% equity, this will lower its WACC. Explain and defend why you agree or disagree. Report how would you advise the CEO. 

Format your paper consistent with APA guidelines.

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*************** *********** **** ***** *** * targeted ******* ********* ** 40% long **** **** and 60% common **************** ** Weighted ******* Cost ** CapitalFor ******** *** **** ***************** EquityPrice=D ******* * ****** ********* ****** * ****** * ******* * ************************** * Wd ** + ** keWhere ** * ****** of **** We * ****** ** ****** Kd * **** of debt Ke * **** ** **************************** * **************************************************** ******* Cost of Capital of ****** *********** ** ************************** * CostDebt60%390%234%Equity40%920%368%WACC602%Weighted ******* **** ** ******* ***** ********** ***** ** ************ ** the ******** ******* Cost of **************** ******* Cost of ******* ** *** average **** of **** ***** *** ******* structure ** weights ** ******** *** the ******* ** capital ********* **** ****** ***** preference ***** *** A *********** ****** *** financed ****** ** **** or equity ******** Average Cost ** ******* ******** the ******* **** ** return ** *** company ** * ***** It ** ******** ********** ** the management of *** company and ** useful ** determining the feasibility ** ** investment *********** With *** **** ** ******** ******* cost of capital we *** ********* *** ******* ***** ** cash ***** discounted at **** ******** ******* **** ** ******* is * very ********* used ********* **** for ******** *** ** ******* for **** *** ********* *** *** ******* ** helps to ******** *** ******* *** ********** ******** along **** **** ******** in ** ***** with all this ** **** helps ** *** ********* ** ************ *** ******* two ********** ** *** ******* ********* ****** Debt and ****** **** ** *** ******* ***** ******* ****** ** the ********* fund ** know **** debt ** ***** **** ******* *** ******* *** hence ** ******** **** ** repayment On the ***** **** equity ** the ***** generated from *** ****** *** ***** ******** **** low **** ** *** therefore say ** the capital structure *** ****** debt *********** **** it **** ** ******* for *** company to ******** * ******* and **** ***** **** ** debt ** ********** ******** Interest ** **** ** ***** *** ** ****** pay corporate tax ** interest ** ** ********* **** ** **** ***** tax ****** ** *** *************** capital *** we ******* *** ****** ** *** equity from *** ********* ***** is ******* **** *** ** ** ** *** ******* considering *** ***** *** *** **** ** equity **** ** ****** ** ***** higher **** *** **** ** **** **** **** we *** ******* conclude **** *** ****** ** *** debt ** *** ******* *** ***** **** be *** **** ** capital *** the ***** is *** **** ** *** company *** higher **** ** **** of capital **** *** cost ** capital **** ** *** ******** ********* ******** taking **** ** riskier *** *** ******* *** it **** reduces *** ******* **** ** capital ** the ********* **** ** ******** ** **** ******* ***** ******* ** ******** *** **** *** ** the same **** ** **** increase *** interference ** ********* in *** ******* but ** *** **** **** ** ****** ****** are ****** company **** *** have any obligation ** ****** ***** ****** ** dividendIn ***** ** **** if cash *** ******** **** ** ********* **** in *** company because company ****** **** *** **** levered Soit **** have ** ****** on *** **** ** return required ** shareholders ** ******* ********* upon leverage ****** *** ********* pattern the ***** of directors ****** **** ******** ******** ******* ****** ** **** ** **** * ****** **** ** ********* *** ******* **** of ******* of the projectFrom the workings **** above ***** *** ******* has *** **** and *** ****** *** ******** ******* ** **** *** kd and ** ***** ************* of ******* structure as ******* ** get *** ******** ******* cost ** ******* ** **** *** *** company increases ** debt ** *** *** **** equity **** ** *** ** *** the weighted ******* **** ** ******* ** 602% ***** we *** ******* *** **** ** ***** ** increase in **** there ** * decrease ** *** overall cost ** ******* ** *** company It *** therefore be advised to the ******* ** increase *** **** ** it ***** ******** *** weighted average **** ** ******* ******** **** *** ******* ** ready ** **** *** risk ** repayment of the ***********

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