Determining the Debt-Equity Mix: El Caf

IntroductionEl Café, an extremely popular coffee shop in Nicollett Mall, Minneapolis, atomic number 25 is going through a period of many challenges. The physical body of this paper is to identify the scenario(s), explain recommended solvents and summarize the different ceiling crown body structure concepts addressed in the modelling by respond the two questions: why is WACC important to an organic law and what impact does WACC capture on capital budgeting and structure?The Scenario and the Recommended SolutionScenario unity: El Café is challenged to repeal adequate financing for two redundant shops. The accusive is to discern a debt-equity change integrity that minimized the WACC. The recommended solution is to obtain a debt-equity mix of 70 ? 30% which achieved the last-place possible WACC of 8.65%. Scenario two: After four good years, El Café has decided to blow up into other cities to accele swan ingathering and become a major player in the business. The obje ctive is to select the optimal refinement strategy for El Café by benchmarking the projected rate of generate against the WACC. The recommended solution is to choose a 7 city blowup strategy with a debt-equity mix of 96.47% - 3.53% which provides a projected rate of return which is substantially higher(prenominal) than the WACC.

Scenario Three: El Café is experiencing labored times where the large hail of debt in the capital structure is leading to bankruptcy. The objective is to neutralise the threat of bankruptcy. The recommendation is to swop 25% of the debt with equity and distribute the real estate ass ets which go forth provide a substantial am! ount of money. Why is WACC pregnant to an Organization?The weighted-average comprise of capital is the rate of return that the community must stay to earn on its average-risk investments to provide a fair anticipate return to all its security holders. As in the simulation, it is used... If you indispensableness to get a full essay, show it on our website: OrderCustomPaper.com

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