All businesses have associated risks. Businesses must cope with risk in order to operate. The risks can be minimized when you are certain of the outcome and can be maximized when there are uncertainties. The internal and external factors also impact risk. With all other factors held constant in financial markets, the higher the risk associated with the decision, the higher the expected return. Many investors are risk averse especially when dealing with their investments.
In this assignment, you will discuss risks and risk aversion. You will also explore your natural risk tendencies and discuss how you would react to specific financial decisions that you may encounter, personally and professionally.
Complete the following:
- Determine the cost of debt and equity for your chosen US publicly traded company using the techniques presented in chapters 5 and 6 of your textbook, The portable MBA in finance and accounting (4th ed.). Show your work.
- Determine what the weighted average cost of capital (WACC) is for your chosen company.In 300 words or less explain why the weighted average cost of capital is important to managers, investors, and creditors of the company.
- Determine what, in your opinion, the optimal mix of debt and equity is for your company. What benefits should an optimal mix produce for shareholders (owners)? Explain in detail.