Corporate Finance Analysis

Running head: CORPORATE FINANCE ANALYSIS
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:

CORPORATE FINANCE1
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Cost of Equity..............................................................................................................................2
Cost of Debt.................................................................................................................................3
Weighted Average Cost of Capital..............................................................................................4
Appropriate Discount Rate..........................................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................8

CORPORATE FINANCE2
Introduction
Capital Structure of a company plays a crucial role while deciding upon the level of
finance and the cost associated with each of the financing sources. It is important that companies
maintain an optimal capital structure whereby an optimal mix of debt, equity and other financing
sources are proportionately applied in the overall financing structure of the company (Brusov et
al., 2018). It is important that the business risk and financial risk of the company are well
analysed before deciding upon the optimum level of debt that the company would be taking in
the overall capital structure of the company (Callen 2016).
Discussion
Cost of Equity
The cost of equity for the stock was calculated with the help of the Capital Asset Pricing
Model where the required rate of return formula applied for the computation of the same was as
follows:
CAPM, Ke = Rf + (Rm – Rf) β
Where;
Ke: Cost of Equity
Rf: Risk Free Rate
Rm: Return on Market
B: Beta
It is important to consider both geared and ungeared beta for the purpose of relevant
exposure of equity and asset beta of a company. Alteration in the Capital Structure of a company
can significantly affect the profitability or the net income of the company. It is important the