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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.2, 1.4, and 1.6, respectively. Assume all current and future projects will be financed with 25 percent debt and 75 percent equity, the current cost of equity (based on an average firm beta of 1.1 and a current risk-free rate of 5 percent) is 12 percent and the after-tax yield on the company's bonds is 10 percent.
What will the WACCs be for each division?
A company borrows $150000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay yearly interest payments at the nominal annual rate of 6% compounded yearly.
Miller Brothers is considering a project that will produce cash inflows of $61,500, $72,800, $84,600, and $68,000 a year for the next four years, respectively. What is the internal rate of return if the initial cost of the project is $225,000
Construction costs incurred during the first year were $12 million and estimated costs to complete at the end of the year were $18 million. During the first year the company billed its customer $13 million
You deposit $2,200 in your bank account. If the bank pays 4% simple interest, how much will you accumulate in your account after 10 years What if the bank pays compound interest (annually)
Suppose the historical average annual return for the asset was 7.3 percent and the standard deviation was 8.4 percent. What is the probability that your return on this asset will be less than -4.5 percent in a given year
one of the advantages of leasing voiced in the past is that it kept its liabilities off the balance sheet, thus making it possible for a firm to obtain more leverage than it otherwise could have.
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital.
A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 80% debt. The interest rate on the debt would be 8%.
Six months ago, you invested $350,000 to become a partner in a medical practice in which you have a 50% ownership interest. Today, your partner defaulted on the payments for a $2 million Open MRI system that is used by the partnership.
The before-tax cost of debt is 7.50%, and the tax rate is 40%. The target capital structure consists of 45% debt and 55% common equity. What is the company's WACC if all the equity used is from retained earnings
You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries
Coefficient of variation Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these alternatives.
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