An Analysis of Capital Structure and Cost of Capital: Target Corporation

huitai cao

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Kakolyris, Andreas  

Abstract:

This project studies how capital structure affects the cost of capital and company value by using Target Corporation as an example. The main goal is to understand whether changing the amount of debt and equity has a clear influence on Target’s financial performance. Financial data from Bloomberg and company reports are used in this analysis. The cost of equity is calculated using the Capital Asset Pricing Model, and the cost of debt is estimated based on interest expenses and credit ratings. Several scenarios are created by changing the debt ratio. For each scenario, the weighted average cost of capital is recalculated to see how financing costs change. The results show that small and moderate changes in leverage do not greatly reduce the cost of capital. Although more debt can provide tax benefits, it also increases financial risk. Therefore, the overall effect on company value is limited. This study shows that firms need to balance risk and return when making financing decisions.