Capital Structure Decision and Concept of Weighted Average Cost Essay

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The background readings of this Module provide plenty of information regarding both the issue of the capital structure decision and the concept of the weighted average cost of capital.

Consider three companies: Ford, Disney, and Electronic Arts. Reflect on the nature of the business of these three companies. You are recommended to also get to the web site of one company in each of these categories. You might also check what the beta of each of these companies is.

Based on the readings of the Module, and upon reviewing the nature of the operations of the companies including the nature of their customers and products, what would you recommend should the capital structure (total liabilities or debt and equity proportions) be for each of the three companies? Note that you are not asked to provide specific numbers, just ‘low debt ratio’, ‘medium debt ratio’ or ‘high debt ratio’. (Do not quote the actual company’s capital structure or their debt-to-equity ratios as per their balance sheet.)

Write a five page paper explaining your recommendations for each of these three companies. Consider the nature of their business, the riskiness of the company, and the advantages and disadvantages of debt over equity financing in your answers.

Case Assignment Expectations

In the grading of your assignment, you will be assessed on the following items:

1. The use of multiple references beyond just the links mentioned above. Those links are just to get you started, but your ability to do your own research beyond these two articles will be assessed.

2. Your ability to focus the paper from beginning to end on the precise assignment questions. Remember that the assignment question is not to provide the firm’s actual capital structure, but rather your recommendation as to whether or not the firm should have a high, medium, or low debt ratio.

3. Your paper should be at least five pages in lengths.

4. Your paper should include proper referencing, both with a bibliography and references within your text. See the two links on referencing in the syllabus page for more detail about referencing. These references should direct support your answers to the four main assignment questions.

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