Reference no: EM13196614 , Length: 1048 Words

1)Library Research Assignment

• Use the comparative analysis below for S&J Plumbing, Inc. to determine if S&J Plumbing's return on assets is comparable to its competitors in the same industry.
• Use the library and other resources to research competitors.
• Support your answers.

2) You are the new chief financial officer (CFO) hired by a company. The chief executive officer (CEO) indicates that in the past, there was little rhyme or reason for the prior CFO to approve or disapprove of large capital projects or investments that various managers proposed. You mentioned to the CEO that there are three primary methods of capital budgeting, and they are as follows:

• Net present value method
• The pros and cons of the methods of capital budgeting
• Your recommendation as to which method is most effective and why
• A company's cost of capital and how it is calculated
• What the marginal cost of capital is and how it differs from the weighted average cost of capital
• How market rates and the company's perceived market risk impact its cost of capital, which will include the following:
  • The marginal cost of debt and the marginal cost of equity
  • The principles of the capital asset pricing model (CAPM)

The expected return of the firm's contributors of capital and their respective share of the right side of the balance sheet are as follows:

• 33.3% common stock with an expected return of 15%
• 33.3% preferred shareholders with a 9% expected return
• 33.3% bondholders with a yield to maturity (YTM) of 6%
• A corporate tax rate of 40%

Given the previous information, answer the following questions:

• What is the firm's weighted average cost of capital (WACC)?
• If the firm wished to lower its WACC, how should it change the relative mix of the 3 contributors of capital? Explain your answer.

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