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Reacher Technology has consulted with investment bankers and

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Chapter 15. Ch 15-12 Build a Model

Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown below. Data for the risk-free rate, the market risk premium, an estimate of Reacher's unlevered beta, and the tax rate are also shown below. Based on this information, what is the firm's optimal capital structure and what is the weighted average cost of capital at the optimal structure?

Percent Financed with Debt (wd) Before-tax Cost Debt (rd) Input Data
Risk-free rate 4.5%
Unlevered beta 0.8
0% 6.0% Tax rate 40.0%
10% 6.1%
20% 7.0%
30% 8.0%
40% 10.0%
50% 12.5%
60% 15.5%
70% 18.0%

Fill in formulas in the yellow cells to find the optimum capital structure.

Debt/Value Equity/Value Debt/Equity A-T Cost of Levered Cost of
Ratio (wd) Ratio (ws) Ratio (wd/ws) Debt (rd) Beta Equity WACC
0% 1.0 0.00
10% 0.9 0.11
20% 0.8 0.25
30% 0.7 0.43
40% 0.6 0.67
50% 0.5 1.00
60% 0.4 1.50
70% 0.3 2.33

WACC at optimum debt ratio =
Optimum debt ratio =

Solution Summary

Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown below. Data for the risk-free rate, the market risk premium, an estimate of Reacher's unlevered beta, and the tax rate are also shown below. Based on this information, what is the firm's optimal capital structure and what is the weighted average cost of capital at the optimal structure?

Percent Financed with Debt (wd) Before-tax Cost Debt (rd) Input Data
Risk-free rate 4.5%
Unlevered beta 0.8
0% 6.0% Tax rate 40.0%
10% 6.1%
20% 7.0%
30% 8.0%
40% 10.0%
50% 12.5%
60% 15.5%
70% 18.0%

Fill in formulas in the yellow cells to find the optimum capital structure.

Debt/Value Equity/Value Debt/Equity A-T Cost of Levered Cost of
Ratio (wd) Ratio (ws) Ratio (wd/ws) Debt (rd) Beta Equity WACC
0% 1.0 0.00
10% 0.9 0.11
20% 0.8 0.25
30% 0.7 0.43
40% 0.6 0.67
50% 0.5 1.00
60% 0.4 1.50
70% 0.3 2.33

WACC at optimum debt ratio =
Optimum debt ratio =

\$2.19

List of URL's for research about launching financial advisory and investment consulting services

I WILL FOCUS ON THIS SCENARIO, hOWEVER , CAN YOU GIVE ME URLS TO WHERE YOU GET SOME OF TH EINFORMATION , I NEED TO CITE THEM IN APA FORMAT. FURTHER CAN YOU EXPAND ON IT MORE IN ANY WAY?( e.g)

Give advice to at least two other participants. You may have some great ideas that can help another individual or perhaps there are some questions you need to be ask about a product.

This scenario is about launching financial advisory and investment consulting services to the fastest growing and richest ethnic community and segment in USA: The Asian community, including people from China, India, Japan etc. There has been an increasing trend among these migrant communities in USA to invest due to their higher incomes and saving capacities. Even though there are a lot of big and small financial advisory firms on the likes of Merrill Lynch, Morgan Stanley, boutique investment and brokerage firms, there are a very few or none catering especially to these ethnic communities. Due to significant cultural differences and language barriers with these communities, there is a great opportunity to target these segments with prsonalized and customized investment advisory services by hiring financial advisors from these segments only.

The core strategy will be to offer a complete range of financial services in the areas of equity and commodity futures broking, wealth management, insurance and mutual funds and private banking services under roof. Since the core area of operations will be within these communities, the marketing strategy will be predominantly ethnic marketing, especially designed to suit the tastes and customs of these communities. The professionals will be hired with care with certain required characteristics like knowledge of the language, customs and cultures.

Since there is little or no competition and this will be an extremely new concept within an existing industry with extensive focus on niche segment, the rewards, if succesful, can be amazing.

I WILL ICLUDE THE QUESTION HERE AGAIN .
You have been invited to attend the American Intercontinental Brainstorming Conference, a meeting of elite entrepreneurs and marketing executives. You will use this forum to discuss a new product you wish to launch and the marketing plan you will develop over the next five weeks. Since nondisclosure and confidentiality agreements have been signed, this venue provides a unique opportunity to share ideas with peers about your product.

What product, good, or service will you be working with? Provide details about the company and its products. (Remember that you will be working with the company for the next 5 weeks)
Give advice to at least two other participants. You may have some great ideas that can help another individual or perhaps there are some questions you need to be ask about a product.
Be sure to pick a product or company that is ready to market. If you are developing a new product, assume that the development phase is over and you are ready to launch the product into the marketplace. Please remember that this assignment is all about--marketing the product or service to your targeet customer group and we'll be going through the steps to do that.

THANK YOU VERY MUCH

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