El Cafe Simulation

The simulation that will be discussed in this paper concerns the conclusions that a coffee shops possessor needs to make in parliamentary law to expand their business. The name of the shop is El Café and in primed(p) in Minnesota. The owner has decided to expand the business because it is decorous profitable and expanding the business is the next logical step. There is a rich uncle that is willing to help the owner by allowing him to expend his cash assets. Following will be a swindle discussion on the importance of weighted average address of capital (WACC) and what impact WACC has on capital budgeting and structure.

For the first scenario the owner needs to raise $400,000 in adequate financing in order to expand operations by two shops. The scenario calls for a determination on whether to get a debt zero revenue and low interest loan or to use the rectitude that Uncle Jorge has in the attach to. The decision was made on the debt-equity mix to do 70% debt and 30% equity. With this decision we have achieved the lowest WACC of 8.65%. By doing so, it also allowed the keep company to not put too more than leverage on the company with too much debt. Otherwise, the company would have a substantial part of earning by collision the high debt obligations.

For the second scenario, four years have passed and the company is looking at expanding into other cities. Doing so would accele reckon maturation and create a market for the company. The decision that needs to be made is how many cities to expand into and which source of funding to use. The decision was made to expand to 7 cities with debt to ensure that the projected rate of return was higher than the WACC. Choosing all debt-financing lowered...

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