Debt-Equity Mix Simulation

Running head: DEBT-EQUITY MIX SIMULATION

Debt-Equity Mix Simulation

The investment decision, also known as capital budgeting, is central to the success of the company. Capital budgeting is the process of evaluating and selecting long-term investments (Brealey, Myers, & Marcus, 2007, 189). Managers need to make right investment decisions for the future of the company since not all investments are equally risky. Managers need to know how to calculate the weighted average cost of capital (WACC) in order to find out risks and uncertainty related to capital budgeting. WACC is essential to an organization’s financial success. The WACC allows the leaders of a business to measure the possible effects of different financing alternatives. They must consider the cost of debt and equity components to maximize profitability. This can be done by using the WACC as a benchmark for determining which investments would produce the best results. Managers must look into a firm’s capital structure and assess the weighted costs of