Capital Structure and Cost of Capital

Paper on Raytheon Corporation (RTN) with the following questions that need to be answered:

· Find out on Raytheon Balance Sheet the total short term liabilities (short term debt) and long term liabilities (long term debt)

· Find out the numbers of shares outstanding, and the recent price per share

· Multiply to find the market value of equity (MKT CAP) of Raytheon.

Please use .yahoo.com/”>http://finance.yahoo.com or .google.com/”>http://finance.google.com

Now:

· Compute the debt ratio of Raytheon (total liabilities divided by total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity)

· Also show these ratios for Short Term liabilities ONLY and for LONG-TERM liabilities ONLY (instead of TOTAL liabilities use just SHORT-TERM liabilities and LONG-TERM liabilities)

· Show all work and calculations

NEXT:

1. Give a good recommendation as to whether or not you consider these ratios to be too small or too large. Should Raytheon increase its debt or take steps to pay off its debt?

2. Compute the debt to equity ratios of Lockheed Martin and CACI

· Which of these 3 companies has the highest debt to equity ratio

· Why do we think it chose to have a relatively high ratio?

· Which of these 3 companies has the lowest debt to equity ratio, and why do we think it chose to have a relatively lower ratio?

LAST:

1. Identify and discuss the concept of optimal capital structure in approx. 3 paragraphs.

2. Discuss the advantages and disadvantages of debt financing and of equity financing in approx. 3 paragraphs

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