Terry Brown

Managerial Finance

The aim is to find the capital preferences of the corporations and offer effective recommendations. The report uses such methods of analysis as WACC estimation and EVA calculation. The analysis relies on financial topics, namely cost of capital and capital budgeting. Key financial terms are weighted average cost of capital (WACC) and economic value added (EVA). Appendices include all financial data for the enterprise. The paper argues that Alphabet has a strong financial position with high revenues and operating income. In addition, the firm has strong financial solvency, as it relies mainly on shareholders’ equity. Alphabet’s cost of capital is estimated at 9.49%. EVA of the corporation has been trending higher since 2015 to about $18.5 billion in 2017. The report finds that the company has a significant capacity to increase its debt and reduce the overall cost of capital. The growing EVA also suggests that the firm is in a good financial position, so it can be more aggressive in its financing/investment decisions. It is recommended that Alphabet add more debt to its capital in order to benefit from the tax shield and lower the cost of capital as well as apply project ranking by net value added to its investment activity. Nevertheless, the report has some limitations. Firstly, the analysis does not cover comparison of Alphabet and its competitors to determine common trends in the industry. Secondly, the report does not consider current economic conditions that have a substantial impact on the cost of capital and investments. Thirdly, the report does not cover strategic and marketing aspects that are very important for the company.