Determining the Debt-Equity Mix: El Caf

IntroductionEl Café, an extremely popular coffee shop in Nicollett Mall, Minneapolis, atomic number 25 is going through a period of many challenges. The purport of this paper is to identify the scenario(s), explain recommended responses and summarize the different detonating device crown body structure concepts addressed in the pretext by respond the two questions: why is WACC important to an brass and what impact does WACC capture on capital budgeting and structure?The Scenario and the Recommended SolutionScenario sensation: El Café is challenged to repeal adequate financing for two surplus shops. The intent is to discern a debt-equity mess up that minimized the WACC. The recommended solution is to obtain a debt-equity mix of 70 ? 30% which achieved the lowest possible WACC of 8.65%. Scenario two: After four good years, El Café has decided to blow up into other cities to accele swan return and become a major player in the business. The objective is to select t he optimal refinement strategy for El Café by benchmarking the projected rate of generate against the WACC. The recommended solution is to choose a 7 city blowup strategy with a debt-equity mix of 96.47% - 3.53% which provides a projected rate of return which is substantially higher(prenominal) than the WACC.

Scenario Three: El Café is experiencing labored times where the large measuring stick of debt in the capital structure is leading to bankruptcy. The objective is to countermand the threat of bankruptcy. The recommendation is to swop 25% of the debt with equity and contend the real estate assets which go forth provide a substantial amount of mon! ey. Why is WACC pregnant to an Organization?The weighted-average address of capital is the rate of return that the community must transmit to earn on its average-risk investments to provide a fair evaluate return to all its security holders. As in the simulation, it is used... If you wish to get a full essay, show it on our website: OrderCustomPaper.com

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