1. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands...

1. (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. However, consumer products have a somewhat lower profit margin, and this will cause Carter's growth rate in earnings and dividends to fall from 7 percent to 6 percent. Should management make the change? Assume the following:
E[RM]= 10%; RF=7.5%; D0 =$2.

Assume all the facts as given in part (a), except the one about the changing beta coefficient. By how much would the beta have to decline to cause the expansion to be a good one? (Hint: set P0 under the new policy equal to P0 under the old one, and find the new beta that produces this equality.)

Solutions

Expert Solution

jeff jeffy answered 3 months ago

Next > < Previous

Related Solutions

step by step of all equations used and explanations claearly . (a) Suppose Carter Chemical Company's management...

step by step of all equations used and explanations claearly . (a) Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. However, consumer products have a somewhat lower profit margin, and this will cause Carter's growth rate in earnings and dividends to fall from 7 percent to 6 percent. Should management make the...

A company who conducts weight management of soda for bars concludes that on average the soda...

A company who conducts weight management of soda for bars concludes that on average the soda bottles weigh 12.29 oz . With a sample size of 36 , and standard deviation of weight from those bottles being 0.09 ounces. The same company went on to test the mean weight of 21 soda bottles for grocery stores and concluded that on average the soda bottles weighed 13.10 oz with a standard deviation of 0.13 ounces. With a 10 percent significance level...

A researcher conducts an independent-measures study to examine how the brain chemical serotonin is related to...

A researcher conducts an independent-measures study to examine how the brain chemical serotonin is related to aggression. One sample of rats serves as a control group and receives a placebo that does not affect normal levels of serotonin. A second sample of rats, low serotonin group, receives a drug that lowers brain levels of serotonin. Then, the researcher tests the animals by recording the number of aggressive responses each of the rats display. See the data below. Is there a...

2) A researcher conducts an independent-measures study examining how the brain chemical serotonin is related to...

2) A researcher conducts an independent-measures study examining how the brain chemical serotonin is related to aggression. One sample of rats serves as a control group and receives a placebo that does not affect normal levels of serotonin. A second sample of rats receives a drug that lowers brain levels of serotonin. Then the researcher tests the animals by recording the number of aggressive responses each of the rats display. The data are as follows. Control n = 10 M...

Suppose that a market research analyst for a cell phone company conducts a study of their...

Suppose that a market research analyst for a cell phone company conducts a study of their customers who exceed the time allowance included on their basic cell phone contract; the analyst finds that for those people who exceed the time included in their basic contract, the excess time used follows an exponential distribution with a mean of 22 minutes. Consider a random sample of 144 customers who exceed the time allowance included in their basic cell phone contract. a. Find...

1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it...

1.) It is December 31. Last year, Carter Chemical Co. had sales of $16,000,000, and it forecasts that next year’s sales will be $14,880,000. Its fixed costs have been and are expected to continue to be $6,400,000, and its variable cost ratio is 12.50%. Carter’s capital structure consists of a $13.5 million bank loan, on which it pays an interest rate of 9%, and 250,000 shares of common equity. The company’s profits are taxed at a marginal rate of 40%....

1. A researcher conducts a study on the effects of amount of sleep on creativity. Twenty...

1. A researcher conducts a study on the effects of amount of sleep on creativity. Twenty subjects come to the researcher’s clinic. The researcher divides the subjects into four groups, each containing five subjects. Each group sleeps at the clinic for a different amount of time (2, 4, 6, or 8 hours). After awakening, each subject takes a test of creativity. The following table shows the creativity scores for the subjects in each group: Amount of Sleep (in hours) 2...

Question 1 1 pts A psychology professor conducts a small study to see if humor in...

Question 1 1 pts A psychology professor conducts a small study to see if humor in text would affect students' memory for the sentences in the text. She had two groups of students read a large set of sentences, one group read humorous sentences while the other group read similar sentences without obvious humor in them. After the reading phase, both groups were tested for their memory of the sentences read. Identify the dependent variable and the independent variable in...

1. Chemical thermodynamics and chemical kinetics study two different aspects of chemical reactions. Explain what these...

1. Chemical thermodynamics and chemical kinetics study two different aspects of chemical reactions. Explain what these are and how they are related. 2. Describe some of the advantages of studying the mechanisms of chemical reactions. 3. Derive an expression for t½ for a second order reaction (Rate = k[A]2).

1. A nurse researcher conducts a study about the lived experience of ICU nurses working during...

1. A nurse researcher conducts a study about the lived experience of ICU nurses working during the COVID-19 pandemic. The study is best aligned with which paradigm? A. Pragmatic B. Critical C. Constructivist D. Positivist 2. A nurse researcher wants to test if their newly developed biofeedback intervention is an effective method to lower blood pressure among adult patients with stage 1 hypertension. Which method would be used to answer this question? A. Quantitative design research B. Quality improvement project...

Subjects