WACC and Corporate Investment Decisions

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Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products.

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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