Week 4 – Discussion 2
Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your responses.
Cost of Capital
Pathbuilder is being used in this course and this discussion is currently locked. Prior to beginning work on this discussion you must complete the WACC, Cost of Debt, Cost of Preferred Stock and Common Equity, Cost of Selling Securities, and Financing Mix and Weights in the WACC modules in the RealizeIt platform. Once the modules are completed and this information has been transferred into the course gradebook this discussion will unlock and you will be able to submit your initial post to the forum.
(Please note that some modules will have prerequisites that must be completed first. You are highly encouraged to start your RealizeIt work early in order to ensure that you have plenty of time to successfully complete all required modules prior to the due dates for your assigned work. If you do not complete any work in the RealizeIt platform, the grade returned from RealizeIt will be a Zero.)
Corporations often use different costs of capital for different operating divisions. Using an example, calculate the weighted cost of capital (WACC). What are some potential issues in using varying techniques for cost of capital for different divisions? If the overall company weighted average cost of capital (WACC) were used as the hurdle rate for all divisions, would more conservative or riskier divisions get a greater share of capital? Explain your reasoning. What are two techniques that you could use to develop a rough estimate for each division’s cost of capital? Your initial response should be 200 to 250 words.
Guided Response: Review several of your classmates’ posts. Respond to at least two classmates by sharing whether you agree or disagree with their view of the use of the company’s capital. Explain your reasoning.
Carefully review the Discussion Forum Grading Rubric for the criteria that will be used to evaluate this Discussion Thread.