Explain how relative risk (from the investor’s perspective) impacts the cost of capital for Genesis Energy.

Assignment 1: Discussion—Finance Organization and Long-Term Planning

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. Your response should be thorough and address all components of the discussion question in detail, include citations of all sources, where needed, according to the APA Style, and demonstrate accurate spelling, grammar, and punctuation

Do the following when responding to your peers:

  • Read your peers’ answers.
  • Provide substantive comments by
    • contributing new, relevant information from course readings, Web sites, or other sources;
    • building on the remarks or questions of others; or
    • sharing practical examples of key concepts from your professional or personal experiences
  • Respond to feedback on your posting and provide feedback to other students on their ideas.
  • Make sure your writing
    • is clear, concise, and organized;
    • demonstrates ethical scholarship in accurate representation and attribution of sources; and
    • displays accurate spelling, grammar, and punctuation.

    Grading CriteriaMaximum PointsQuality of initial posting, including fulfillment of assignment instructions16Quality of responses to classmates12Frequency of responses to classmates4Reference to supporting readings and other materials4Language and grammar4Total:40