Question

Based on the information that you learned about capital structure and budgeting, determine what the optimal capital structure should be for Amazon. You will need to determine how much equity (common stock) the company will offer in the IPO and how much debt the company should assume in their global expansion to meet the goal of $50 million.

**Provide** your recommendation in a 500-word APA
formatted paper.

**Determine** what capital structure will work best
with your initial assessment. Describe the structure using the
ratios.

**Include** the dollar amount of equity (common
stock) the company should issue in the IPO and how much debt the
company should use for this expansion to reach the $50 million
goal. Explain your rationale. **Please include NET PRESENT
VALUE!!**

Note: there is no single answer to the question of the firm’s optimal capital structure. Your assessment is weighted more heavily toward your logical explanation rather than having the correct values for debt and equity.

Answer #1

*CAPITAL STRUCTURE*

*A well structured capital formation in a company is a vital
and important responsibility of Management team, Capital structure
can be described as the proportions of capital from equity shares,
preference shares, debts, loans, etc which delivers the money to
the company for their existence and expansion. In the above
scenario we can see that Amazon company is aiming to have $50
Million expansion in their capital, and they are conducting an
analysis how much will be the Debt and Equity ratio in the capital
structure of the company, Accordingly the Debt and Equity ratios
shows the relationship between the two corresponding capital and
also comparing with the company's Assets. we have to maintain a
good Ratio as 2:0 for debt and equity and also the Debt to Asset
Ratio should be 1:0 because we should have proper assets in company
in order to cover the debt responsibilities of the company. While
issuing Initial public offers(IPO) to the public through a primary
market we shouldn't make the full shares as equity shares. As I
described above the proportion of the equity and debt should be
like 2:0 ,hence the IPO Should be only in between $35m-$40m,
Net Present Value(NPV) is the value of a money a
now which would be receiving or paying in the future. we have to
find out the NPV using the inflation rate of the economy, hence we
have no such rate provided in the question we can assume the NPV
rate as 10%, so NPV of $50m making in after 1 is now* $45.45m.
present value factor = 1/1.1=0.909 (50m*0.909=45.45m)

An analyst is trying to determine the optimal capital structure
for a manufacturing firm. Based on current credit markets and the
risk of the company, he has the following estimates for different
capital weights:
Structure A
Structure B
Structure C
Structure D
MV of Debt
$0
$5,000
$10,000
$15,000
MV of Equity
$20,000
$15,000
$10,000
$5,000
YTM of debt
0.00%
6.00%
8.38%
10.10%
Beta
1.20
1.29
1.39
1.94
The current risk free rate is 3.00%, while the market portfolio
risk...

OO Inc. believes that its optimal capital structure consists of
70% common equity and 30% debt, and its tax rate is 25%. Olsen must
raise additional capital to fund its upcoming expansion. The firm
will have $1 million of retained earnings with a cost of
rs = 11%. New common stock in an amount up to $8 million
would have a cost of re = 13.0%. Furthermore, Olsen can
raise up to $4 million of debt at an interest rate...

OO Inc. believes that its optimal capital structure consists of
70% common equity and 30% debt, and its tax rate is 25%. Olsen must
raise additional capital to fund its upcoming expansion. The firm
will have $1 million of retained earnings with a cost of
rs = 11%. New common stock in an amount up to $8 million
would have a cost of re = 13.0%. Furthermore, Olsen can
raise up to $4 million of debt at an interest rate...

WACC Olsen Outfitters Inc. believes that its optimal capital
structure consists of 55% common equity and 45% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $2 million of retained
earnings with a cost of rs = 15%. New common stock in an amount up
to $9 million would have a cost of re = 19%. Furthermore, Olsen can
raise up to $4 million of debt at an...

lsen Outfitters Inc. believes that its optimal capital structure
consists of 45% common equity and 55% debt, and its tax rate is
25%. Olsen must raise additional capital to fund its upcoming
expansion. The firm will have $1 million of retained earnings with
a cost of rs = 12%. New common stock in an amount up to $6 million
would have a cost of re = 13.0%. Furthermore, Olsen can raise up to
$2 million of debt at an interest...

Olsen Outfitters Inc. believes that its optimal capital
structure consists of 65% common equity and 35% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $2 million of retained
earnings with a cost of rs = 13%. New common stock in an
amount up to $6 million would have a cost of re = 14.5%.
Furthermore, Olsen can raise up to $4 million of debt at an
interest...

Olsen Outfitters Inc. believes that its optimal capital
structure consists of 70% common equity and 30% debt, and its tax
rate is 25%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $1 million of retained
earnings with a cost of rs = 10%. New common stock in an
amount up to $8 million would have a cost of re = 12.0%.
Furthermore, Olsen can raise up to $4 million of debt at an
interest...

Olsen Outfitters Inc. believes that its optimal capital
structure consists of 65% common equity and 35% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $3 million of retained
earnings with a cost of rs = 10%. New common stock in an amount up
to $10 million would have a cost of re = 12.5%. Furthermore, Olsen
can raise up to $4 million of debt at an interest...

Olsen Outfitters Inc. believes that its optimal capital
structure consists of 70% common equity and 30% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $5 million of retained
earnings with a cost of rs = 15%. New common stock in an amount up
to $7 million would have a cost of re = 19%. Furthermore, Olsen can
raise up to $3 million of debt at an interest...

Olsen Outfitters Inc. believes that its optimal capital
structure consists of 70% common equity and 30% debt, and its tax
rate is 40%. Olsen must raise additional capital to fund its
upcoming expansion. The firm will have $1 million of retained
earnings with a cost of rs = 12%. New common stock in an amount up
to $10 million would have a cost of re = 14%. Furthermore, Olsen
can raise up to $2 million of debt at an interest...

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