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Solved: Aeropostale Optimum Capital Structure: What was the existing capital structure for your firm? Do you believe it was optimum? (Download Now)

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Description

Pages: 7

Files that you would get:

Word (.docx) & Excel (.xlsx)

Questions Covered in this Solution:

– 1. What was the existing capital structure for your firm? Do you believe
it was optimum?
– 2. Use Hamada’s equation to determine the optimum
– 3. Should your company take on more debt, repurchase stock, have a
seasoned equity offering? Justify your answers

This assignment follows from your previous WACC project. Here, you must determine what the optimum capital structure is for your firm. A sample spreadsheet is provided where you may input the data that you have already found for the WACC. The spreadsheet will use Hamada’s Equation to recalculate the levered betas based on the weights that you choose.

NOTE: You cannot just assume that your weights and your bond values are the same as the sample. You must choose the appropriate weights first based on the market value weights your firm currently has. Then, you must choose appropriate bond rates as you increase or decrease the weight for debt.

You must explain and reference how you chose your numbers and attach a copy of the spreadsheet.

Note that the spreadsheet has all the calculations for the WACC on the top portion, but Hamada’s Equation only uses the CAPM to refigure the levered beta and the new WACC for that beta

Sample of Solution:

What is the existing capital structure for your firm? Do you believe is it optimum?
The existing Capital Structure of Aéropostale is quite tilted towards the debt financing. As
the Debt makes the larger portion of the financing which is 98.0% of the total, while the share of
equity is just 2.0%. Since, the company is holding many long-term contract obligations; the
financial structure of Aeropostale has become more rigid than ever before. The company has faced
serious bankruptcy threats due to this debt oriented capital structure. Most of the company returns
are consumed to satisfy interest payments over the outstanding long-term loans.

5 reviews for Solved: Aeropostale Optimum Capital Structure: What was the existing capital structure for your firm? Do you believe it was optimum? (Download Now)

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