Determine the market value and book value of equity

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Reference no: EM133381325

Capital Structure and Cost of Debt Analysis

Objective:The objective of this homework is to provide students with an understanding of capital structure, market value and book value of equity, and cost of debt analysis in the hospitality and tourism industry sector. Students will be able to compare and contrast the capital structures and financing decisions of two publicly traded companies, determine their cost of debt, and provide critical analysis of their findings. By completing this homework, students will develop critical thinking and analytical skills, as well as a deep understanding of the factors that influence capital structure decisions and cost of debt.

Instructions:

Imagine that, as CEO of a hospitality and tourism company, you want to explore the cost of borrowing or using bonds to raise money, as well as the debt and equity structure of your company.

1. Choose a publicly traded company and its competitor in the hospitality and tourism industry sector.

2. Determine the market value and book value of equity for each company using their latest 10-K filings and Yahoo Finance.

3. Assume the book value of liabilities is the same as the market value of liabilities for each company.

4. Calculate the capital structure of each company using the two values of equity - the market value of equity and the book value of equity and liabilities.

5. Determine the cost of debt for each company, assuming the company needs to borrow money for 10 years, using the bond ratings provided by major credit rating agencies (S&P).

6. Use the 10-year Treasury bond rate as the risk-free rate in the calculation.

7. Write a brief report (1page) summarizing your findings, including the capital structure, market value and book value of equity, and cost of debt for each company, and provide a critical analysis of the similarities and differences between your company and competitor's capital structures and cost of debt. Include an explanation of the potential factors that may influence these differences.

Reference no: EM133381325

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