Week 2 - Caroline Herring: Computron Industries: Cost of...

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Caroline Herring: “Computron Industries: Cost of Capital” Caroline Herring BUS 515- Financial Management Dr. Gordon Smith September 11, 2011 Computron Industries: Cost of Capital Computron Industries is a manufacturer of electronic calculators. In this paper, I will attempt to determine the financial health of Computron Industries by analyzing their current cost of capital. Most firms use different types of capital due their differences in risk. The required rate of return on each capital component is called component cost, and the cost of capital used to analyze capital budgeting decisions is called the weighted average cost of capital (WACC). In order to calculate Computron's 2010 WACC, first we must find the target weights for their debt and common equity. Computron's 2010 debt was $1,000,000 and it's target capital structure is 40% of long term debt. Computron's 2010 common equity was $460,000 and it's target capital structure is 60% of common stock. If we add $1,000,000 and $460,000, we get $1,460,000. Then, we should divide both debt and common stock by $1,460,000 and we get the weights for both: 68% and 32%,
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This note was uploaded on 10/30/2011 for the course BUS 451 taught by Professor Bilbrey during the Spring '11 term at Anderson University SC.

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Week 2 - Caroline Herring: Computron Industries: Cost of...

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