What is Star’s cost of capital under its current and proposed capital structures?

Learning Goal: I’m working on a finance writing question and need an explanation and answer to help me learn.Each student, not presenting/interrogating, will write a two-page paper which provides a methodology that could be followed to actually solve the case.The strategy paper need not be an actual solution to the case — it may simply explain how one would go about solving the case, step by step.The strategy paper is being prepared for the approval of a senior financial manager who is completely familiar with the background of the problem.Therefore the strategy paper should skip background details and deal only with recommended procedures.The paper is procedural rather than descriptive.The level of detail that is appropriate in describing the procedures depends upon the objective of the particular case.For example, If an important objective of the analysis is to determine the amount of additional funds that will be required to support a new project then it is obviously not sufficient to make a statement such as: “Step 3, determine the additional funds requirements.”Instead, exact and detailed procedures should be outlined for determining the amount of external financing required, being careful to identify any peculiarities or complications that are unique to that particular case.Although I encourage you to discuss the cases with other students, strategy papers are to be individually written.I will scan, and record a check for each paper.In addition I will carefully read a random selection of your papers.Strategy papers will be printed and double spaced.Star Appliance Company (A) 1.By what methods could Mr. Foster determine the cost of capital for Star? 2.On what assumptions does each of these methods depend? 3.Which methods are appropriate for Mr. foster to use at Star? 4.Star management has been using a hurdle rate of 10 percent.Is this the appropriate rate to continue to use in evaluating investments at Star?Why? 5.Is Star’s current cost of capital the appropriate hurdle rate for evaluating new investments?Why? 6.What should Star Management do with regard to the three proposed investments? Star Appliance Company (B) 1.Estimate the cost of equity for Star using the dividend discount model, the earnings/price model, and the CAPM.Do the models estimate the same things in different ways, or do they estimate different things? 2.What is Star’s cost of capital under its current and proposed capital structures? 3.Can the method by which stock analysts currently evaluate Star’s stock be used for evaluating internal investment opportunities?If so, do any adaptations have to be made?If not, why are investments in the stock market different from internal investment opportunities? 4.Which projects should Star accept? 5.What difference did you find between Star’s cost of capital in 1976 and in 1984?To what do you attribute the difference? The Jacobs Division 1.If you were Mr. Soderberg, would you recommend that Mr. Reynolds accept the Silicone-X project?If not, why not? 2.How should the effect of competition be taken into account in the decision between the labor- and capital-intensive plants? 3.How should management evaluate the pricing decision and its effect on the Silicone-X capacity investment? 4.From MacFadden management’s (the shareholders’) point of view, how do you like Mr. Reynolds’s method of analyzing investments at the Jacobs Division? Food for Thought:Are there linkages between (i) the total demand for Silicon X and the date of competitive entry into the market; (ii) the date of competitive entry and the type of production facility initially chosen; (iii) the initial pricing strategy and the type of production facility initially chosen?
Requirements: only explanation as a paragraph

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