What is the discount rate applicable to division

Assignment Help Financial Management
Reference no: EM131188212

International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an aftertax cost of debt of 6.1percent and a cost of equity of 14.3 percent. The firm is financed with 37 percent debt and 63 percent equity. Division A's projects are assigned a discount rate that is 2.2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to Division A?

9.07 percent

7.98 percent

6.87 percent

8.27 percent

9.48 percent

Reference no: EM131188212

Questions Cloud

What is after tax cost of capital for this debt financing : Great Seneca Inc. sells $100 million worth of 27-year to maturity 13.39% annual coupon bonds. The net proceeds (proceeds after flotation costs) are $972 for each $1000 bond. The firm’s marginal tax rate is 35%. What is the after tax cost of capital f..
Dividends are expected to grow at constant rate in future : Waldo Computer Chips Inc.’s current stock price is $36, and its last dividend was $2.40. In view of Waldo’s strong financial position, its required rate of return is only 12%. If dividends are expected to grow at a constant rate in the future, and if..
What is the cost of equity for this firm : The common stock of Mill Stones has a beta that is 8 percent greater than the overall market beta. Currently, the market risk premium is 7.65 percent while the U.S. Treasury bill is yielding 4.3 percent. What is the cost of equity for this firm?
Market risk premium decreases-risk-free rate decreases : Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the: beta decreases. market risk premium decreases. risk-free rate decreases. either the risk-free rate or the market rate of return decreases...
What is the discount rate applicable to division : International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an aftertax cost of debt of 6.1percent and a cost of equity of 14.3 percent. The firm is financed with 37 percent de..
Commercial lending processes : With your understanding of the commercial lending processes, discuss your comfort level in participating in the financing efforts of a new business. Explain the lending processes in order from most comfortable to least. As an entrepreneur, would you ..
Spontaneous liabilities to sales ratio-expected net income : Johnson company is expected to increase sales from $6,000,000 to $8,000,000. Total assets will be $3,000,000 at the end of the year. Calculate the following Capital Intensity Ratio, Spontaneous liabilities to sales ratio, expected Net Income over one..
All-equity structure to a levered capital structure for firm : You are writing a comparison of an all-equity structure to a levered capital structure for a firm. It is accurate to state in this comparison that:
Benefit of mutual funds that mainly buy stocks and hold : A benefit of mutual funds that mainly buy stocks and hold them is that

Reviews

Write a Review

Financial Management Questions & Answers

  An increase in expected inflation

An increase in expected inflation would result in

  Display the plan in critical path format

Your organization works five days a week — no holidays. Page 4 provides inventory information and lead time information. End-items are produced at a rate of one per day Use the provided information to develop a detailed implementation plan and displa..

  What is the annual cost of ordering and holding inventory

Thomas Kratzer is the purchasing manager for the headquarters of a large insurance company chain with a central inventory operation. Thomas's fastest-moving inventory item has a demand of 6,050 units per year. What is the optimal number of orders per..

  What is the company cost of preferred stock-rps

Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $52.50 per share with an annual dividend of $5.50 a share. Ignoring flotation costs, what is the company's cost of preferred stock, rps?

  Sale of new sound board used in recording studios

Rolston Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $26,500, and the company expects to sell 1,500 per year. If the tax rate is 38 percent, what is the annual OCF for the project?

  Net present value and internal rate of return

Comparing competing projects' net present value and internal rate of return ________. A. always results in the same ranking of projects B. always results in the same accept-reject decision C. may give different accept-reject decisions D. is only nece..

  Management is considering a stock split

JPix management is considering a stock split. JPix currently sells for $120 per share, and a 3-for-2 stock split is contemplated. What will be the company's stock price following the stock split assuming that the split has no effect on the total mark..

  What would net annual savings be if the service were adopted

Your firm has an average receipt size of $125. A bank has approached you concerning a lockbox service that will decrease your total collection time by two days. You typically receive 7,000 checks per day. The daily interest rate is .016 percent. The ..

  Riskier stock exceed that on the less risky stock

Stock R has a beta of 1.1, Stock S has a beta of 0.30, the expected rate of return on an average stock is 12%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..

  Emergency-major medical expenses-home flood-car accident

Emergency (major medical expenses, home flood, car accident) Include a description of their personal impact on you – your current financial situation, what adjustments you would have to make, how long it will take to pay for each of these, and specif..

  Uses its excess cash to complete stock repurchase

A firm has a market value equal to its book value. Currently, the firm has excess cash of $300 and other assets of $6,200. Equity is worth $5,000. The firm has 500 shares of stock outstanding and net income of $720. What will the new earnings per sha..

  Using the annuity factors and initial-operating

The company is choosing between machine A and B (they are mutually exclusive and the company can only pick one). The initial cost of machine A is $1,400,000 and it will last for 7 years before it needs to be replaced. Using the annuity factors, find ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd