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AB Corporation has two divisions, office paper and landscaping. The CFO is currently using the company’s overall WACC as the hurdle rate for all projects. AB has a company beta of 1.16 while the office paper division’s beta is 0.87 and the landscaping division’s beta is 1.3. Currently, the risk free rate is 2 percent and the market risk premium is 5 percent. The office paper division has identified two projects with expected returns of 7.5 percent and 8 percent. The landscaping division has identified two projects with expected returns of 8.2 percent and 8.6 percent. Draw a graph of the security market line. One the same graph, include a line for the company’s WACC and place an “x” in the appropriate position on the same graph for each of the four projects. Using the CFO’s criteria, which of the projects will be accepted? Which of the projects should NOT be accepted if analyzed properly?
Which of the following would NOT be included in projecting the incremental net cash flow for the terminal year of a new project?
As their financial planner, provide some assistance with these calculations. The two primary options are listed below. Considering all previous information, which outcome requires the lowest monthly (end-of-month) contribution if they also require..
You plan to purchase a $ 250,000 house using a 15-year mortgage obtained from your local bank. The mortgage rate offered to you is 3.75%. You will make a down payment of 20% of th epurchase price. Which of the following is correct? The principal repa..
Hickock Mining is evaluating when to open a gold mine. The mine has 34,000 ounces of gold left that can be mined, and mining operations will produce 6,800 ounces per year. The required return on the gold mine is 10 percent, and it will cost $34.8 mil..
Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be i..
You buy an 11 percent, 30-year, $1,000 par value floating rate bond in 1999. By the year 2014, rates on bonds of similar risk are up to 13 percent. What is your one best guess as to the value of the bond?
Your portfolio is worth $100,000 and has a beta of 1.12. You have $30,000 of stock A which has a beta of 1.50. The rest of your portfolio is composed of stock B with a beta of 0.84 and stock C with a beta of 1.06. What is the value of stock C in your..
The stock’s current dividend is $1.00, and dividends are expected to grow at a constant rate of 3.5% per year. The intrinsic value of a stock should equal the sum of the present value of all of the dividends that a stock is supposed to pay in the fut..
For each of the following ratios indicate whether the firm’s ratios are good or poor as compared to industry averages.
Risk-averse investors reject investments that are fair games. Risk-neutral investors judge risky investments only by the expected returns. Risk-averse investors judge investments only by their riskiness. Risk-loving investors will not engage in fair ..
Which of the following international transactions would NOT be counted as a balance of payments (BOP) transaction? PLEASE EXPLAIN YOUR REASONING
In 1895, the first a sporting event was held. The winner's prize money was $160. In 2007, the winner's check was $1,180,000. What was the percentage increase per year in the winner's check over this period? If the winner's prize increases at the same..
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