Financial Analysis

ost of Capital, Capital Structure,

and Capital Budgeting Analysis

1. The purpose of the project:

In this project, you are supposed to be a financial manager to apply the knowledge obtained from the Financial Management (FINC6352) course to estimate the cost of debt, cost of preferred stock, cost of common equity, capital structure, and the weighted average cost of capital (WACC) for a publicly-traded corporation of your choice. You will use the estimated WACC as the discount rate to perform capital budgeting analysis for a hypothetical project (the information is given below) that is under consideration by the selected company, and decide whether the project should be accepted.

2. Outline for the project:

(1) Executive Summary (10 points)

- Summarize the major findings, results, and the analysis of the report.

(2) Financial Ratio Analysis (40 points)

You are expected to apply the knowledge obtained in Financial Management and Financial Statement Analysis (ACCT6351) to the key financial ratios of the selected company.

- Perform trend analysis of the key financial ratios (i.e., liquidity ratios, asset management ratios, debt management ratios, profitability ratios, market value ratios) of the company.

- Perform industry (or benchmark companies) comparison analysis of the key financial ratios of the company.

- Based on the financial ratio analysis results, discuss/evaluate the financial performance of the company.

(3) Estimate Capital Structure (25 points)

- Estimate the firm’s weights of debt, preferred stock, and common stock using the firm’s balance sheet (book value).

- Estimate the firm’s weights of debt, preferred stock, and common stock using the market value of each capital component.

(4) Compute Weighted Average Cost of Capital (WACC) (35 points)

- Estimate the firm’s before-tax and after-tax component cost of debt; (Note: If the information about the current corporate tax rate is not...