Debt Equity Mix

Determination of Liability - Capital Portfolio Weighted Average Capital Cost (WACC) is the proportion needed to determine the appropriate liability and capital combination in the company's capital structure. ElCafé is a fictitious company used in simulation as a representative example of a viable funding method to determine the proposed franchise expansion. ElCafé faces three major decisions. WACC is used as a benchmark to select the most appropriate funding method based on the company's existing capital structure.

Finance Week 3,325 weeks, students need to complete a simulation titled "Determination of Liability Equity Portfolio: Correct Mixing". In this simulation students need to determine the correct debt capital portfolio and optimal weighted average cost of capital (WACC) while working at all stages of the newly opened exotic coffee shop. The students became owners of a very popular coffee shop called "El Caf & eacute;". The store is located in various communities of Minneapolis, Minnesota. Founded three years ago, the main use of personal savings is the minimum budget, "El Caf & eacute;". Therefore, the student is asked to consider other areas that may spread to the city. In 2001, the city was designated as Special Economic Zone, the governor announced zero tax and interest rate loans. This is the best time to seek out possible expansion of the city as a whole, then the expansion of multiple cities will continue

Through this simulation students need to determine the optimal combination of capital and liabilities to promote the expansion of the "El Caf & eacute" coffee chain. Understanding and using weighted average cost of capital (WACC) is very useful for students' questions. In this course, students understand that the more debts the organization provides to reduce WACC, the more likely that WACC will go bankrupt in the future. To be able to determine the ideal combination of debt and capital is the key to their success.