21 May WHAT WOULD YOU EXPECT WOULD HAPPEN TO THE COST OF EQUITY IF YOU HAD TO RAISE IT BY SELLING NEW EQUITY, AND WHY?
After completing the required calculations,
explain your results in a Word document, and attach the spreadsheet showing
your work. Be sure to explain the following:
o How would you expect the
weighted average cost of capital (WACC) to differ if you had used market values
of equity rather than the book value of equity, and why?
o What would you expect
would happen to the cost of equity if you had to raise it by selling new
equity, and why?
o If the after-tax cost of
debt is always less expensive than equity, why don’t firms use more debt and
less equity?
o What are some of the
advantages and disadvantages of raising capital by using debt?
o How would
“floatation costs” impacted the WACC, and how could they have been
incorporated in the formula?
Note: You can find information
about the top 500 stocks at.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;””>this
Web site.
Reference
S&P 500 index chart. (2014). Retrieved from
the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
Be sure to document your
paper with in-text citations, credible sources, and list of references used in
proper APA format.
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