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FIN501 MOD4 CASE4-The Capital Structure Decision and the Cost of Capital

FIN501 MOD4 CASE4-The Capital Structure Decision and the Cost of Capital

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The Capital Structure Decision and the Cost of Capital TUI University January 5, 2012 The Capital Structure Decision and the Cost of Capital The debt ratio of any enterprise is the core concern of its strategic financing. Various factors contribute to whether a company should engage in high, medium, or low debt loads. Debt loads include the tax rate, earnings variance, and asset beta (TUI University, 2010). Some examples of debt ratio considerations are Mattel, Inc., Clorox Company, and MGM Resorts. Mattel, Inc. Mattel manufactures, designs, and sells various toy products worldwide and operates both domestically and internationally. The company’s domestic sector consists of toy development and marketing through such retailers as Fisher-Price, Mattel Girls & Boys Brands U.S., and American Girl Brand (Mattel, Inc., 2011). Additionally, the segment produces games and puzzles. The international segment produces similar products, but sells products directly to retailers and wholesalers. Although Mattel sells its products globally, the company does not have a physical market presence regionally.
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However, the company has multiple manufacturing facilities worldwide in an effort to reduce risks associated with international trade. Competition in the industry is mainly on play value, quality and price, and strategy in maintaining a competitive advantage and producing various toys. Furthermore, the company thrives in its specialized industry through extensive advertising and consumer promotions. Mattel, Inc. Statistical Information (Public, NASDAQ: MAT) Concerning Mattel’s financial status and risk assumptions, the company’s beta is 0.92 (Google Finance, 2011). Because beta is a measure of systematic risk or market risk, we can conclude that since Mattel’s beta is almost 1 that the organization’s stock moves with the market. Debt/Equity Ratio = .49 vs. Industry Ratio = .63 (MSN Money, 2011).
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