Essay Instructions: the format is very simple. At the beginning please write a 40 word Abstract, then use the simple Intro, Body, Conclusion structure for the essay and on the last page a reference list.
The Assignment:
In simple words, the capital is the combination of debt and equity used to finance a company. 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: Goodyear, Campbell Soup, and Hewlett Packard. 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 (sources at the bottom), 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 (Do not quote the actual company's capital structure or their debt-to-equity ratios as per their balance sheet.)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 Module 4 Case Assignment, you are expected to:
?Describe the purpose of the paper and conclusion.
?Answer the case assignment questions clearly and provide necessary details. Your very first paragraph should include a direct answer to the assignment question, with the body of your paper focused on defending your answer.
?Provide a quality argument; that is, no poor sentence structure, no spelling and grammar mistakes or run-on sentences.
?Provide citations to support your argument and references on a separate page. Please use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/ ; http://www.tuiu.edu/guidelines/Well-Written-Paper.pdf].
?Answer all the case assignment questions in an essay format instead of point format i.e. Intro, Body, and Conclusion. Please do not type questions in the paper.
?Type and double space the paper. Times New Roman, 12 point font.
?The following criteria will also be used to assess your paper:
>Focus
>Breadth (comprehensive quality of written paper)
>Depth (deepness of thought)
>Precision (doing what asked to do)
>Clarity (clearness of thought)
?Critical thinking (application of logic and intellectual criteria such as clarity, creditability, accuracy, precision, relevance, depth, breadth, and significance)
Case Assignment Readings:
Please use other sources along with these.
Damodaran, A. (2005). Finding the right financing mix: The capital structure decision. Retrieved February, 2011, from http://pages.stern.nyu.edu/~adamodar/pdfiles/cfovhds/capstr.pdf
Peavler, R. (2011). Debt and equity financing. Retrieved February, 2011, from http://bizfinance.about.com/od/generalinformatio1/a/debtequityfin.htm
Welsh, I., (1996). A Primer on Capital Structure. The John E. Anderson Graduate School of Management, University of California, Los Angeles.
This Chapter on the Capital Structure Decision is a very good overview. Try to grasp the key concepts. Focus on concepts that involve the tradeoffs between debt and equity. The chapter is an excellent review and it is really worth reading.
Gold, J. (2006). Reducing a Company's Beta- A Novel Way to Increase Shareholders Value,
Journal of Applied Corporate Finance, 18(4) (Fall).
Harvey, C. (1995). The capital structure and payout policy, WWWFinance. Retrieved February, 2011, from http://www.duke.edu/~charvey/Classes/ba350/capstruc/capstruc.htm
