# Working Capital and Financing

Please help me complete and submit a 3,500-4,200-word Capital Structure Analysis Report. For this report, use Target. This report will consist of three sections:

a. Working Capital Management Section

1) Identify which of the liquidity or efficiency ratios were under-performing relative to industry standard or were deteriorating over the five-year trend.

2) Recommend specific changes in working capital strategies for each of the following (when applicable):

a) Cash and marketable securities

b) Credit policy

c) Inventory

d) Sources and uses of short-term financing

3) Your recommendations should include a detailed plan of your working capital strategy. Provide quantitative support for your recommendations. Discuss consequences of your recommendations on the firm's sales, profitability, customer service, quality, risks, and so forth.

b. Valuation and Investment Section

1) Prepare a five-year trend analysis table for the following financial market ratios for the company:

a) Price earnings ratio

b) Earnings per share

c) Dividend yield

d) Common stock share price

2) Recommend a "buy," "hold," or "sell" (reflecting expected performance over the next 12 months) for the company, based upon your prior financial research.

3) Provide five supporting reasons for this recommendation (including financial, market, and industry risks).

c. Cost of Capital Section

1) Calculate the cost of capital (show calculations) for the company using the following:

a) Weighted average cost of capital; and

b) Capital-asset pricing model (beta).

2) Discuss the relative strengths and weaknesses of the methods above as to the appropriate discount rate for the firm.

3) Describe why these two methodologies may produce different results.

4) How would you recommend that the firm lower its cost of capital?

d. Cost of Capital Section

Assume that the company will engage in a major capital acquisition program that is expected to improve EBIT by 10 percent. Do the following:

1) Calculate the EBIT/EPS for debt financing. Discuss the financial implications. Document the source of your information.

2) Calculate the EBIT/EPS for equity financing. Discuss the financial implications. Document the source of your information.

Based upon the calculations above, recommend the best capital structure. Document the source of your information.

https://brainmass.com/business/discounted-cash-flows-model/working-capital-and-financing-158347

#### Solution Preview

I have attached this part:

c. Cost of Capital Section

1) Calculate the cost of capital (show calculations) for the company using the following:

a) Weighted average cost of capital; and

b) Capital-asset pricing model (beta).

2) Discuss the relative strengths and weaknesses of the methods above as to the appropriate discount rate for the firm.

3) Describe why these two methodologies may produce different results.

4) How would you recommend that the firm lower its cost of capital?

c. Cost of Capital Section

1) Calculate the cost of capital (show calculations) for the company using the following:

a) Weighted average cost of capital; and

b) Capital-asset pricing model (beta).

(Attached in the excel file target2007costofcapitallatest)

2) Discuss the relative strengths and weaknesses of the methods above as to the appropriate discount rate for the firm.

A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that is similar to that of the overall firm.

Strengths of CAPM

It relates the company with the market risk. The financial concept is capital asset pricing model or CAPM. It is used to estimate the cost of equity. It describes the relationship between the required rate of return and the non diversifiable risk.

In a competitive market the expected risk premium varies in direct proportion to beta.

Symbolically

Ke= Rf +b(Km-Rf)

Ke= Cost of Equity

Rf= rate of return required on a risk free asset/ security/investment

Km= the required rate of return on the market portfolio

B= beta coefficient.

Thus The capital asset pricing model (CAPM) is a model that provides a framework to determine the required rate of return on an asset and indicates the relationship between return and risk of the asset.

Assumptions of CAPM

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#### Solution Summary

This solution shows step-by-step calculations to determine the firm's market cap, capital component weights, treasury yields, bond rating, short-term and long term debt, weighted average of capital, and cost of capital for target using dividend Gordon Model.