FIN 4424 Keiser University Week 3 Weighted Average Cost of Capital Report

Please answer the following questions and submit via homework box by Sunday midnight.

Read the assessment criteria for the assignment and follow the instructions before submitting to get the maximum grade. Remember to always present using the APA style and cite properly to avoid plagiarism problems.

1) What is Weighted Average Cost of Capital (WACC) and how is it calculated? Present and interpret formula seen in the weekly talk.

2) What is the main benefit of debt financing? How does an over-indebtedness affect corporate value and can it cancel out the benefit derived from the tax shield?

3) What are the benefits, costs and risks of an aggressive financing strategy and a conservative financing strategy?

4) How is the optimal CPPC (WACC) determined? Explain your answer.

5) Calculate the CPPC of the Cacao del Pacifico company according to the following data and say what possible aspects could improve this opportunity cost or cost of capital:

Liabilities / Assets: 55%

Equity / Assets: 45%

Average cost of liabilities: 9.57%

Corporate tax rate: 40%

Risk-free rate 5-year US Treasury securities: 2.88%

Market rates: 10.5%

Beta of the share of Cacao del Pacifico: 0.80

Remember that once the CPPC is calculated, review the changes and adjustments that the CFO could make to improve the cost of capital that he has calculated with this data. In other words, show that this cost can be reduced by modifying the given assumptions and how these assumptions could be modified.