# Weighted Average Cost of Capital

Â Purpose of Assignment
Students should understand the mechanics in calculating a company’s weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments.
Assignment StepsÂ
Resources: Tutorial help on ExcelÂ® and Word functions can be found on the MicrosoftÂ®OfficeÂ website. There are also additional tutorials via the web that offer support for office products.Â
Scenario: You work for an investment banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor’s capital structure is as follows:Â
Source of Capital Â Â Â Â Â Â Â Â Â Â Â Market Value
Â Â Â Â Â Â Â Â Â Â Bonds Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â \$10,000,000
Â Preferred Stock Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â \$ 2,000,000
Â Common Stock Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â \$ 8,000,000
To finance the investment, Vestor has issued 20 year bonds with a \$1,000 par value, 6% coupon rate and at a market price of \$950.Â
Prepare your analysis in a minimum of 150-200 words in MicrosoftÂ® Word.
Use MicrosoftÂ® Word tables in the presentation if you choose.Â
**SHOW ALL CALCULATIONS AND ANALYSIS IN THE PRESENTATION**
Format your assignment consistent with APA guidelines.Â

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