UNIT 3 IP FIN(2)

.docx

School

Colorado Technical University *

*We aren’t endorsed by this school

Course

615

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

4

Uploaded by Yoshee5

Report
Qiyoshi Trevillion December 3, 2023 Individual Project 3 Professor Perez
Capital Structure The particular mix of debt and equity which a company uses to finance its overall activities and expansion is referred to as the firm's capital structure. An organization’s capital structure is used to fund its expansion as well as the rest of its operations. In general, the capital structure of a company shall be described in terms of debt and equity ratio or debt to equity ratio. In order to understand WACC, it is necessary to understand the cost of capital. The cost of capital in the case of a company can simply be expressed as how much it must pay for its operations. Similarly, costs of capital are considered to be the least that a company can make on its own without going into bankruptcy or causing damage to investors. The cost of capital is the point at which a firm generates sufficient revenue for it to meet its current debt and equity commitments. WACC It is known as the weighted average cost of capital or WACC, which represents the amount that a company requires to finance its activities. The ratio of WACC and RRR is equal because a company's WACC constitutes the amount that creditors and shareholders demand in return for their investment. WACC is determined as follows for the example provided: Cost of capital = Cost of Debt (1-tax) + x Cost of Equity In the given scenario Debt 40% Equity 60% Tax Rate 35%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help