I need help with my introduction paragraph. Could you please add a few more sentences to the intro? Perhaps highlighting the objective, and what I am specifically including in the analysis and evaluation of the project....just to support the information further. Below are details for the assignment and please see attached. Thank you.

Purpose of Assignment

Students should understand the mechanics in calculating a company's weighted average cost of capital using the capital asset pricing model (CAPM) and its use in making financial investments.

Assignment Steps

Resources: Tutorial help on Excel and Word functions can be found on the Microsoft Officewebsite. There are also additional tutorials via the web that offer support for office products.

Scenario: You work for an investment banking firm and have been asked by management of Vestor Corporation (not real), a software development company, to calculate its weighted average cost of capital, to use in evaluating a new company investment. The firm is considering a new investment in a warehousing facility, which it believes will generate an internal rate of return of 11.5%. The market value of Vestor's capital structure is as follows:

Source of Capital

Market Value

Bonds

$10,000,000

Preferred Stock

$2,000,000

Common Stock

$8,000,000

To finance the investment, Vestor has issued 20 year bonds with a $1,000 par value, 6% coupon rate and at a market price of $950. Preferred stock paying a $2.50 annual dividend was sold for $25 per share. Common stock of Vestor is currently selling for $50 per share and has a Beta of 1.2. The firm's tax rate is 34%. The expected market return of the S&P 500 is 13% and the 10-Year Treasury note is currently yielding 3.5%.

Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project.

Assess whether Vestor should make the warehouse investment.

1 Weighted Average Cost of Capital Weighted Average Cost of Capital Weighted Average Cost of Capital (WACC) measures the returns that the corporations pay to its investors and stockholders for the investments that they have made. It calculates an average figure, in terms of percentage, of the cost that the corporation pays to its investors and stockholders. The main sources of capital for a corporation are common stock, debts and preferred stock. 2 The cost of capital of each form of capital is different. The debts raised in form of bonds are paid a fixed rate of interest and the preferred stocks are also paid a fixed rate of dividend. The shareholders of common stock are paid dividend from the net income which is at the discretion of the management. If the management finds fit it declares cash dividend and if the company is facing financial problems they do not declare any cash dividend. WACC takes these three elements in consideration and provides a generalized figure of the cost that the corporation has incurred on availing capital. In the words of Fernandez, P. (2015) the WACC is a rate which is used by the companies to discount their free cash flows. A higher WACC is not considered good and the investors are of the view that it is risky to invest in the company with higher WACC. Calculating for WACC To find the WACC we must first calculate the following; equating the current market price and present values, the cost of the bond, the cost of the preferred stock and the cost of the common stock. Once, we have these calculations we can then calculate the Weighted Average Cost of Capital. The calculations are as follows: Equating the current market price and the present values of (coupon payment + maturity value) 950=[60{1(1=R)20}/R] + {1000/(1+R)20 Using an online calculator (Wolfram Alpha) r=0.0645 or r=6.45% Cost of Bond = 4.26% Cost of Preferred Stock Dividend/Market Price = 2.5/25 = 0.1 or 10% 3 Cost of Common Stock: Cost of Equity = Risk Factor + Beta (Market Interest Rate - Risk - Free Rate) =0.035 + {1.2(0.13 - 0.035)} = 0.149 = 14.9% Source Market Proportion Cost Prop. *Cost Bond Preferred Value 10000000 2000000 0.5 0.1 0.0426 0.1 .0213 0.01 Stock Common 8000000 0.4 0.149 0.0596 20000000 1 WACC= 0.0909 9.09% Stock Is the Warehouse a Good Investment? The firm is considering making an investment on buying a warehouse to increase profit and stability and having the ability to have a long-term profit from said investment. After looking at the information that we have gathered on what the WACC will be for the firm for a ten-year period and if the investment of the warehouse would be a good move you can see that the WACC would be 9.09 % so looking at what the firm was looking to have a return of 11.5% this would be a worthwhile investment. You can see that the market interest rate is low and the ability to have the ability to have long term equity from investing in this warehouse will work due to the fact the firm has a strong return rate and the stock of the firm will stay strong. This will not cause the firm to have a negative cost rate. This means the end cost will not be greater in a ten-year window over the profit to be made. 4 The above analysis reveals that WACC plays an important role in executing investment decisions. If the return on investment is higher than the WACC then it is advisable to go for the investment. WACC provides a rate at which the corporation can avail the capital from investors. By comparing the return that the company will get on investing the investor's money with the WACC the financial decisions can be implemented. Thus, WACC plays a vital role in finalizing the investment decisions when the capital is to be sourced externally. 5 References Wolfram|Alpha: Computational Knowledge Engine. (2017). Wolframalpha.com. Retrieved 26 August 2017, from http://www.wolframalpha.com/?i=950+%3D+%5B+60+%7B1+ %E2%80%93+(12Br)%5E-20%7D%2Fr%5D%2B%7B1000%2F(1%2Br)%5E20+%7D Fernandez, P. (November 17, 2015), WACC: Definition, Misconceptions and Errors. Retrieved from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1620871