Critical Infrastructure Emergency Services
February 21, 2021
Case Study Use APA 6th Edition Format and support your work with at least 3 peer-reviewed references within 5 years of publication. Remember that you need a cover page and a reference page.
February 21, 2021

Leverage and Capital Structure

After watching the video, answer the following questions in your post:

Did Alex Clark initially fund the business with equity or debt?
Initially, Clarks chocolate business is very small. Compared to publicly traded companies, would Clarks required rate of return on equity be higher or lower than the average required rate of return on equity for small cap companies of 15%? Explain your answer.
After the business was established, Clark talked about buying a building to expand. This is a good example of an investment project that a business must evaluate. Would the required rate of return for Clarks building purchase be higher or lower than the overall chocolate companys required rate of return? Explain your answer.
Should Clark use some bank debt to finance all or a portion of the building purchase?
Justify your answer by explaining how the weighted average cost of capital for the company would change if Clark uses bank debt to finance all or a portion of the building purchase.
What is the primary risk that Clark faces if she uses debt to finance the entire building purchase? For purposes of this discussion, assume that the debt would then comprise 95% of the companys capital structure.

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