Discuss three practical considerations that would guide you through selecting an optimal capital structure for your firm. Rank these considerations from the most important to the least important. Explain why you chose this ranking.
The weighted average cost of capital (WACC) is an important tool for the capital structure. Go to the website Yahoo! Industry Summary and select two firms within the same industry. The industry may be that in which you currently work or it may be an industry that interests you. Calculate the WACC for the two firms. How do the WACCs compare? Are the WACCs what you would expect? What causes the differences between the two firms’ WACCs?
Specifically, the following critical elements must be addressed:
I. Capital Structure
a) Discuss three practical considerations that would guide you in selecting an optimal capital structure for your firm.
b) Rank the considerations from most important to least important and explain why.
a) Select two firms within the same industry and calculate the WACC for each firm.
b) Discuss how the WACCs compare.
c) Discuss whether the WACCs are what you would expect. d) Discuss what might cause the differences in the two WACCs.
2 pgs max; 2 sources, APA