Reflection Cost of Capital Pfizer

Team Reflection on Cost of Capital

Team C: Giuseppe Cooks, Jessica Olan, and Katrice Bottoms

FIN/571

Monday, January 12, 2015

 Paul Stevens, MBA

Introduction

Pfizer is a drug research and manufacturing company. The company is a risky and profitable business that finances through debt.  They are the top earners in the industry by revenue in the United States. This corporate company employs the Capital Market Group. This group is responsible for building an optimal capital structure for success through many challenges. They are additionally responsible for making sure that all prioritized projects are a real return for the shareholders. In building a good decision, the productivity index comes into the picture. This metric provides what the net present value of the project and the returns created from the investment. Even thou, Pfizer have 42 billion in debt; they are still able to obtain additional capital financing because the majority of the equity is cash. We will share more about the relationship between the weighted average cost and how the capital asset price model works with all funding costs.

Cost of Capital

Pfizer has several essential costs of capital challenges; which include optimizing capital structure, and minimizing operational costs of the company. Pfizer optimizes their capital structure in order to collect the money that investors need to invest. Pfizer has an opportunity cost of holding cash through the company insurance policy, R & D costs, and initial operational and production costs. Pfizer has to come up with the right level of capital structure to optimize potential costs and funds to continue operating the business and stay competitive with others in the market. The video  show that the planning of an optimal capital structure to be the most difficult, because there were several aspects of considered when planning such, including, the amount of cash the company should maintain for insurance purposes, the challenges of minimizing taxes, funding and opportunity costs, and preparing for any unexpected changes in the business alignment.  Another problem, the company faces, is the high startup cost of a new product creates an enormous weight of debt at times since the company has to take into account the many trails associated with human testing of these products and the other costs such as initial development, taxes, and liabilities related to new products.