fiance question


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 Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft®Office website. There are also additional tutorials via the web that offer support for office products.

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:

Source of Capital

Market Value



Preferred Stock


Common Stock


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. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm’s tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10-Year Treasury note is currently yielding 3.5%.

Prepare your analysis in a minimum of 700 words in Microsoft® Word.


The following assignment parts were selected or appointed:

1. Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project. – CYNTHIA

2. Assess whether Vestor should make the warehouse investment. The findings of our calculation results will be assessed, to justify or argue, the best decision the Vestor business should make on behave of their investors. Should the investment be made or not, and why? – – KRIS

3. Prepare your analysis in a minimum of 700 words in Microsoft® Word.

a) analysis 240 words – Capital Asset Pricing Model (CAPM) What is it? Advantages and Disadvantages YADHIRA

b) analysis 240 words – Cost of capital components – The ways to raise capital through Equity and Debt -The external sources of financing – JOANNE

c) analysis 240 words – Weighted Average Cost of Capital (WACC) What is it? Advantages and Disadvantages – CHLOE

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