Finance Project Objective: We will focus on the capital structure and practi

by | Aug 1, 2022 | Financial Management


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Finance Project

Objective: We will focus on the capital structure and practice estimating the weighted
average cost of capital (WACC) for an actual firm using the concepts and
techniques introduced in the course.

Resources: The following websites are helpful in accessing financial information on
publicly-traded U.S. companies:
– for company SEC filings (most importantly, annual reports (Form 10-K))
 – for selected interest

Instructions: answer the questions below.
 Perform your own calculations of the company’s ratios and other
measures used in your analysis. Any corresponding ratios for industry
peers can be simply obtained from outside sources.
 Show all your work/calculations to receive full credit. The calculations
should be presented in the body of the report, i.e., within your discussion.
 Report all numbers properly and consistently, i.e.,
 all rates in percentages with two decimal places,
 all dollar values with dollar signs and the same number of decimal
 all values above one thousand with commas for thousands separators,
 indicating whether any numbers are displayed in either thousands or
 Cite outside sources of all your information and data inputs (both with in-
text citations and the list of references at the end of your report).

Your investment management firm, Albers Investment Group, is considering making
a significant investment in Microsoft Corporation (NASDAQ: MSFT) and is currently
in the process of evaluating this potential investment. The Vice President of your
firm would like your team to do a preliminary analysis of Microsoft’s capital
structure and its cost of capital by answering her questions listed below. Since she
has a limited time to read your report, you intend to include only relevant
information and to be brief and to the point.


1. Capital Structure NEEDS TO BE 2 PAGES of the Three
Examine the firm’s current capital structure (i.e., mix of debt and equity). Your
discussion should include an analysis of
 the company’s leverage-related ratios over the past three years (trend analysis)
as well as compared to the same ratios of its two or three industry peers (peer
group analysis),
 the company’s dividend policy, including its dividend payout ratios,
 potential changes to the company’s capital structure. That is, in the short run, is
the company likely to borrow additional debt or pay off existing debt and/or
issue new shares or repurchase outstanding shares? Base your answer on your
projections of the company’s financial needs, capital expenditures, and economic
and interest-rate forecasts.

2. Cost of Debt ONE PAGE
Estimate the company’s before-tax cost of debt by using the yield to maturity on its
existing long-term bonds. If the company does not have any outstanding bond issues,
one can use the effective rate on the company’s long-term liabilities to proxy for its cost
of debt. It can be calculated by dividing the company’s reported interest expense by its
total long-term liabilities.
Note: To obtain yields to maturity on the company’s outstanding bonds, go to finra- Under “Market Data,” select “Bonds.” Under “Search,”
click “Corporate,” and type the company’s name. A list of the firm’s outstanding
bond issues will appear. Bond issues may be listed on multiple pages. Assume that
the firm’s policy is to use the expected return on its noncallable long-term
obligations as its cost of debt. Find the noncallable bond issue (which does not have
“Yes” in the column titled “Callable”) with the longest time to maturity and non-
missing reported yield. Yields to maturity are reported in the last column titled
“Yield.” If the company does not have non-callable bonds outstanding, simply use
the yield to maturity on the bond with the longest time to maturity. Collect the yield
and maturity date for your chosen bond issue.
NO Opening paragraph or conclusion. Write this as a report not an essay format. Cite all sources and the where the calculations came from. Make sure to focus on Google and Apple as the 2 competitors. Thank you!



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