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Posted: February 19th, 2022
Considering Genesis Energy’s aggressive growth plan, Sensible Essential Consulting suggested that its client should broaden the scope of financing beyond short-term loans and consider long-term financing options. These options would greatly enhance the ability of the operations management team to fund the capital investments and growth in operating expenses.
One option is selling more equity in the company. A public stock offering might be a possibility; however, a company as young and small as Genesis Energy might be hard to value. Sensible Essential Consulting believes that another private investor might require preferred stock dividends in order to mitigate some of the financial risk. Another option is a long-term bank loan.
Acting as the finance expert for Sensible Essential Consulting, respond to the following:
Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital. Go to www.yahoofinance.com and look under SEC filings. Use a US publicly traded company, such as Apple, Google, DuPont, etc.
Identify the sources of long-term financing for Genesis Energy.
Analyze the potential costs and benefits of each option.
Explain how relative risk (from the investor’s perspective) impacts the cost of capital for Genesis Energy.
Determine the cost of debt and equity for Genesis Energy and its weighted average cost of capital.
Calculate the required rate of return for Genesis Energy using the capital asset pricing model (CAPM). What is the required return for Genesis Energy shareholders?
By the due date assigned, post your response to the Discussion Area. Through the end of the module, review and comment on at least two peers’ responses.
Write your initial response in 300–500 words.
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