Finance Organization and Long-Term Planning
Considering Genesis’s aggressive growth plan, Sensible Essentials suggested that its client should broaden the scope of financing beyond short-term loans and consider long-term financing options. These options would greatly enhance the ability of the operations management team to fund the capital investments and growth in operating expenses.
One option is selling more equity in the company. A public stock offering might be a possibility; however, a company as young and small as Genesis might be hard to value. Sensible Essentials believes that another private investor might require preferred stock dividends in order to mitigate some of the financial risk. Another option is a long-term bank loan.
Acting as the finance expert for Sensible Essentials, respond to the following:
Determine the cost of debt and equity for Genesis and its weighted average cost of capital. Go to www.yahoofinance.com and look under SEC filings. Use a US publicly traded company, such as Apple, Google, DuPont, etc.
Identify the sources of long-term financing for Genesis.
Analyze the potential costs and benefits of each option.
Explain how relative risk (from the investor’s perspective) impacts the cost of capital for Genesis.
Determine the cost of debt and equity for Genesis and its weighted average cost of capital.
Calculate the required rate of return for Genesis using the capital asset pricing model (CAPM). What is the required return for Genesis shareholders?
Write your initial response in 5–7 paragraphs. Apply APA standards to citation of sources.
By Saturday, May 24, 2014, post your response to the appropriate Discussion Area. Through Wednesday, May 28, 2014, review and comment on at least two peers’ responses. In your response, do the following:
Respond with substantial comments to enrich discussion and the learning experience.
Contribute new, relevant information or quotes from course readings, Web sites, or other sources. Build on the remarks or questions of others, or share practical examples of key concepts from your experience, professional or personal.
Assignment 1 Grading Criteria
Was insightful, original, accurate, and timely.
Was substantive and demonstrated advanced understanding of concepts.
Compiled/synthesized theories and concepts drawn from a variety of sources to support statements and conclusions.
Discussion response and participation:
Responded to a minimum of two peers in a timely manner.
Offered points of view supported by research.
Asked challenging questions that promoted the discussion.
Drew relationships between one or more points in the discussion.
Wrote in a clear, concise, formal, and organized manner.
Responses were error free.
Information from sources, where applicable, was paraphrased appropriately and accurately cited.