Debt-Equity Mix Simulation

Having the appropriate debt-equity mix is very important to the financial felicity of any pedigree. One must give careful stage setting to the mix of debt and equity capital which your fundamental law is to have. Although debt pay is cheaper, obtaining such finance depends on your ability to repay. It may similarly demand significant security. One must also operate that your organization is not excessively leveraged (i.e., the ratio of debt to equity is not too high). I recently completed a cloak execution for FIN/325 titled Determining the Debt-Equity Mix. During the simulation I was given(p) the role of owner of a coffee shop and was understand through the various stages of the evolving lineage. During the different stages I was presented with situations where I had to obeisance different proportions and costs of debt and equity components so that I could brighten investment decisions. The goal was to optimize the Weighted Average hurt of Capital (WACC) for t he business so that I could lead the business to success. Following are the situations that I encountered and the decisions that I made as well as the reasons why I made those decisions. The belief portion of the simulation presented me with the challenge of expanding the business in a very competitive market.

In send to be felicitous at expansion I needed to use WACC as a benchmark to decide the optimal debt-equity mix. Finding the dependable mix would help me minimize the WACC. I chose 70% debt to 30% equity mix which helped me achieve the lowest possible WACC of 8.65 percent. Choosing a higher equity percentage would have increased the WACC advantageously and a higher debt would have over-leveraged the business. Being over! -leveraged would have perhaps caused lenders to seek a higher rate of return receivable to the increased risk. If you want to get a full essay, stage it on our website: OrderEssay.net

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