Capital Budgeting and Capital Structure

Capital Budgeting and Capital Structure

Virtual Stock Exchange Project

Module 4 SLP Assignment

· Sell stock, calculate return, and explain price volatility

Please download the . You will type your answer into this Excel workbook. When finished with the SLP assignment, please save the document with your last name and submit to the dropbox.

1. Sell all of your interest in at least one company that pays a dividend and include the following information in the Excel template:

· Company Name

· Ticker Symbol

· 52-week High

· 52-week Low

· Dividend Yield

2. Assume you bought the stock mentioned in 1. above at the 52-week low and sold it at the 52-week high. What would the rate of return be for this stock? (Hint: be sure to include the dividend yield).

3. Choose the stock with the most price volatility over the project. Attempt to explain why this fluctuation occurred using information about the company, the industry, and/or the macroeconomy.

SLP Assignment Expectations

Answer the assignment questions directly.

· Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.

· For computational problems, make sure to show your work and explain your steps.

KEY TAKEAWAYS BEFORE ATTEMPTING THIS ASSIGNMENT

The capital budgeting and capital structure of a company are two key components of any successful business. This essay will explore the impact of capital budgeting on capital structure, the relationship between capital budgeting and financing decisions, and the benefits and risks of capital budgeting and capital structure management. Through an analysis of these topics, this essay will demonstrate how capital budgeting and capital structure management can be used to create a strong and successful business.
The impact of capital budgeting on capital structure has been a hotly debated topic in the field of finance. In their 1998 article in the Journal of Financial Economics, KA Froot and JC Stein conducted a comprehensive study on the subject. Through their analysis, they were able to identify how capital budgeting affects the capital structure of a firm. Specifically, they found that capital budgeting can have both positive and negative effects on a company’s capital structure. Positive effects include the ability to create new sources of funds, increase debt capacity, and optimize the use of capital. On the other hand, negative effects can include financial distress and overinvestment. Based on their findings, Froot and Stein concluded that capital budgeting decisions can have a significant impact on a company’s capital structure, and therefore, must be carefully considered.
In the 1980 article by JA Miles and JR Ezzell, the authors discuss the relationship between capital budgeting and financing decisions. They argue that capital budgeting decisions are more closely related to financing decisions than is commonly thought. The authors explain that the capital budgeting decision is the primary factor in determining a firm’s capital structure, and that the two decisions are ultimately intertwined. They point out that a firm’s capital structure can have a significant impact on the profitability of the company, and they suggest that firms should take a holistic approach to capital budgeting and financing. By considering both factors at the same time, firms can ensure that they are making the best possible decisions for their business. Furthermore, the authors assert that decisions made in one area can affect the other, and that firms should be aware of the implications of their decisions in both areas. Ultimately, the authors conclude that an integrated approach to capital budgeting and financing is necessary to ensure the long-term success of a company.
In their 1998 article in the Journal of Financial Economics, KA Froot and JC Stein examine the various benefits and risks associated with capital budgeting and capital structure management. Capital budgeting is the process of evaluating and selecting long-term investments that are intended to increase the value of a business. Capital structure management involves the use of debt and equity to finance the business. These two processes are important for businesses to consider when making decisions about their long-term financial health. Froot and Stein argue that capital budgeting and capital structure management can be beneficial for businesses by helping them to make better decisions about their investments and financing. Proper capital budgeting can lead to higher returns on investments, while effective capital structure management can help to reduce the cost of financing. However, the authors also caution that there are risks associated with both processes. Poor capital budgeting decisions could lead to excessive investments in projects that fail to generate sufficient returns, while excessive use of debt in capital structure management could lead to unsustainable levels of debt and increased financial risk. Overall, Froot and Stein emphasize the importance of carefully evaluating the benefits and risks of both capital budgeting and capital structure management in order to make the best decisions for the business. They conclude that, when used properly, these two processes can be beneficial for businesses, but that careful consideration must be given to the potential risks in order to ensure that the overall benefits outweigh the costs.
Capital budgeting and capital structure are two important concepts for businesses to consider when making decisions about their operations. Proper budgeting helps businesses identify and prioritize their spending, while capital structure helps organizations understand and manage their financial risk profile. These concepts allow business owners to strategically allocate resources in order to maximize their return on investments. By understanding and leveraging capital budgeting and capital structure, companies can successfully identify profitable projects, manage their debt, and build financial strength.
Work Cited
KA Froot., JC Stein.”Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach.”https://www.sciencedirect.com/science/article/pii/S0304405X97000378
KA Froot., JC Stein.”Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach.”https://www.sciencedirect.com/science/article/pii/S0304405X97000378
JA Miles.”The weighted average cost of capital, perfect capital markets, and project life: a clarification.”https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/weighted-average-cost-of-capital-perfect-capital-markets-and-project-life-a-clarification/D62E0E7E636EBA6156374FBDDA74B3C3

 

 

 

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