Determining the Debt-Equity Mix Simulation Summary Free Essay, Term Paper and Book Report
“El Café an extremely popular coffee shop located in the Nicollett Mall, Minneapolis, Minnesota caters to college students, yuppies, and even the occasional senior citizen. At present, El Café has become a very profitable business, and is looking to expand its operation to meet a growing customer base” (financial Analysis for Managers).
Throughout this paper, we will address each simulation scenario presented, the recommended solution for the simulation, and why the particular decision was made. In addition, the paper will discuss the importance of Weighted Average Cost of Capital (WACC) to an organization, and its impact on capitol budgeting and structure.
Simulation Example 1
In the first simulation, El Cafe faces the challenge of raising adequate financing for its expansion of two additional shops. The scenarios objective was to select a debt-equity mix that minimized the WACC for the expansion plan. After evaluating the different options available, we determined that a debt-equity mix of 70% - 30% achieved the lowest possible WACC of 8.65%. Too high an equity component would ......
Word Count: 841
Page Count: 3.3 (250 words a page / double spaced)
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