Capital structure is the percentage of a company's operating money acquired via debt or equity. It is also an acutely important management decision as it impactsa company's risk profile.The weighted average cost of capital (WACC) is an important tool for the capital structure. The cost of capital is a minimum rate of return on a project for the firm. The cost of capital is inversely related to the value of the firm. The lower the WACC is, the higher the firm's value. This case study will provide you an opportunity to explore practical considerations of an optimal capital structure and to calculate the WACC of two firms within the same industry.

Prompt:First, discuss three practical considerations that would guide you in selecting the optimal capital structure for your firm. Rank these considerations from the most to the least important and explain why you ranked them in that way. Next, go to the websiteYahoo! Industry Summaryand select two firms within the same industry. The industry may be that in which you currently work or it may be in another industry that interests you. Calculate the WACC for the two firms. Discuss how the WACCs compare and also discuss whether the WACCs are what you would expect. Lastly, discuss what might cause the differences between the two firms'WACCs.

Specifically, the followingcritical elementsmust be addressed:

1. Capital Structure
2. a)Discussthree practical considerationsthat would guide you in selecting an optimal capital structure for your firm.
3. b)Rankthe considerations from most important to least important and explainwhy.
4. WACC
5. a)Select two firms within the same industry andcalculate the WACCfor each firm.
6. b)Discuss how theWACCs compare.
7. c)Discuss whether theWACCs are what you would expect.
8. d)Discusswhat might cause the differencesin the two WACCs.