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Cost of Capital (WACC). Suppose your company has decided to use a divisional WACC approach to analyze projects. The firm currently has 2 divisions, A and B, with betas for each division of 0.5 and 1.5, respectively. If all current and future projects will be financed with half debt and half equity, and if the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 5%) is 18% and the after-tax yield on the company's bonds is 6%, what are the WACCs for divisions A and B? Hint: First Solve for Market Risk Premium (MRP). MRP = (Km-Rf)
Division A WACC?
Division B WACC?
Suppose that Vermont Corporation has net payables of 200,000 Mexican pesos in 180 days. The Mexican interest rate is seven percent over 180 days, and the spot rate of the Mexican peso is $.10.
Recognize foreign exchange rate data and discuss its impact on your investment decision.
After that period, growth should match the 6 percent industry average rate. The last dividend paid (D0) was $1. What is the value per share of your firm's stock?
Discuss the purpose and give examples of specific fraud detection procedures in acquisition and expenditure cycle.
Common stock: 240,000 shares outstanding, selling for $64.80 per share, beta is .88 and will pay a dividend of $3.00 next year.The dividend is expected to grow by 5.3% per year indefinitely.
What amount of the payroll department costs will be allocated to the molding department?
How do you explain the success of firms which do not use a formal strategic planning process?
If you make a deposit every month for the next five years beginning one month from today, how much will the deposit have to be in order for you to be able to pay cash for the car?
Discuss the random walk hypothesis? Does research evidence tend to support or deny the validity of this hypothesis?
A proposed new investment has projected sales of $836,000. Variable costs are 56 percent of sales, and fixed costs are $187,540; depreciation is $96,500. Assume a tax rate of 40 percent.
The Clearwater Aquarium Corporation will produce 66,000 ten gallon aquariums next year. Variable costs are 40% of sales while fixed costs total $133,200.
Assume you're to receive a stream of annual payments (also called an "annuity") of $193,723 every year for three years starting this year. The interest rate is 4%. What is the present value of these three payments?
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