This assignment follows from your previous WACC project. Here, you must determine what the optimum capital structure is for your firm. A sample spreadsheet is provided where you may input the data that you have already found for the WACC. The spreadsheet will use Hamada’s Equation to recalculate the levered betas based on the weights that you choose.
NOTE: You cannot just assume that your weights and your bond values are the same as the sample. You must choose the appropriate weights first based on the market value weights your firm currently has. Then, you must choose appropriate bond rates as you increase or decrease the weight for debt.
You must explain and reference how you chose your numbers and attach a copy of the spreadsheet.
Note that the spreadsheet has all the calculations for the WACC on the top portion, but Hamada’s Equation only uses the CAPM to refigure the levered beta and the new WACC for that beta.
- Use the “Sample Combination WACC and OCS Spread Sheet” as a model
- Your table will likely not be identical since it depends on what your capital structure is now
- What was the existing capital structure for your firm? Do you believe it was optimum?
- Use Hamada’s equation to determine the optimum
- Should your company take on more debt, repurchase stock, have a seasoned equity offering? Justify your answers
I have attached the company that I have done the WACC on. The company is Michael Kors