Question
In: Finance
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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 0.5, 1.0, 1.2, and 1.5, respectively. Assume all current and future projects will be financed with 60 debt and 40 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 3 percent) is 15 percent and the after-tax yield on the company’s bonds is 9 percent. What will the WACCs be for each division?
Solutions
jeff jeffy answered 6 months agoRelated Solutions
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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 0.6, 1.0, 1.3,
and 1.6, respectively. Assume all current and future projects will
be financed with 60 debt and 40 equity, the current cost of equity
(based on an average firm beta of 1.0 and a current risk-free rate
of 5 percent) is 12 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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 0.5, 1.0, 1.2,
and 1.5, respectively. Assume all current and future projects will
be financed with 50 debt and 50 equity, the current cost of equity
(based on an average firm beta of 1.0 and a current risk-free rate
of 7 percent) is 14 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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 0.5, 1.0, 1.2,
and 1.5, respectively. Assume all current and future projects will
be financed with 60 debt and 40 equity, the current cost of equity
(based on an average firm beta of 1.0 and a current risk-free rate
of 3 percent) is 15 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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, 1.1, 1.5,
and 1.7, respectively. Assume all current and future projects will
be financed with 35 percent debt and 65 percent equity, the current
cost of equity (based on an average firm beta of 1.3 and a current
risk-free rate of 6 percent) is 15 percent and the after-tax...
A firm with a WACC of 13% is evaluating two projects, A and B, for this...
A firm with a WACC of 13% is evaluating two projects, A and B,
for this year’s capital budget. The after-tax cash flows are
depicted as follows: Project A 0 1 2 3 4 5 | | | | | | -6,000 2,200
2,200 2,200 2,200 2,200 Project B 0 1 2 3 4 5 | | | | | | -18,000
5,800 5,800 5,800 5,800 5,800 Calculate NPV, IRR (Hint: between
24.00% and 24.50% for Project A; between 18.00%...
A firm has a WACC of 8% and is deciding between two mutually exclusive projects. Project...
A firm has a WACC of 8% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $63. The
additional cash flows for project A are: year 1 = $20, year 2 =
$39, year 3 = $67. Project B has an initial investment of $73.The
cash flows for project B are: year 1 = $60, year 2 = $45, year 3 =
$32.
a. What is the payback for project A? (Show your answer...
Q) A firm has a WACC of 9.60% and is deciding between two mutually exclusive projects....
Q) A firm has a WACC of 9.60%
and is deciding between two mutually exclusive projects. Project A
has an initial investment of $60.12. The additional cash flows for
project A are: year 1 = $19.64, year 2 = $35.94, year 3 = $43.15.
Project B has an initial investment of $74.74. The cash flows for
project B are: year 1 = $57.52, year 2 = $47.69, year 3 = $31.12.
Calculate the Following:
-Payback
Period for Project A:...
A firm has a WACC of 11.04% and is deciding between two mutually exclusive projects. Project...
A
firm has a WACC of 11.04% and is deciding between two mutually
exclusive projects. Project A has an initial investment of $64.71.
The additional cash flows for Project A are:
Year 1 = $17.65
Year 2 = $38.98
Year 3 =$44.55.
Project B has an initial investment of $70.01. The cash flows
for Project B are:
Year 1 = $54.71
Year 2 = $48.39
year 3 = $39.00.
Calculate the following:
•Payback Period for Project A:
•Payback Period for...
Q) A firm has a WACC of 11.15% and is deciding between two mutually exclusive projects....
Q) A firm has a WACC of 11.15% and is deciding between two
mutually exclusive projects. Project A has an initial investment of
$64.25. The additional cash flows for project A are: year 1 =
$16.53, year 2 = $37.29, year 3 = $55.44. Project B has an initial
investment of $74.76. The cash flows for project B are: year 1 =
$58.16, year 2 = $37.08, year 3 = $20.71.
Calculate the Following:
-Payback Period for Project A:
-Payback...
A firm has a WACC of 13.64% and is deciding between two mutually exclusive projects. Project...
A
firm has a WACC of 13.64% and is deciding between two mutually
exclusive projects.
Project A has an initial investment of $62.12. The additional
cash flows for Project A are:
Year 1 = $19.26
Year 2 = $37.74
Year 3 = $58.27
Project B has an initial investment of $71.69. The cash flows
for Project B are:
Year 1 = $56.39
Year 2 = $37.73
Year 3 = $33.58
Calculate the following:
a. Payback period for Project A
b....
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