Estimate wacc for both divisions

Reference no: EM131488436

Question: (Divisional costs of capital and investment decisions) Star Corporation is a provider of computer software and IT services in two large regions of Easter Europe. The company uses 12 percent to evaluate investments; however, due to latest developments it realized that two divisions have quite different risks and returns. In fact, comparable companies for region 1 have equity betas of 2.0 while in region 2 this is about 0.5. The financial manager aims to estimate the cost of capital as close to correct as possible and tries to evaluate how acceptable investments in both regions are at 12 percent rate.

The following data is available for both divisions:

a. Estimate WACC for both divisions.

b. How acceptable is the investment at 12 percent? In general, Star Corporation used 11 percent as a cost of capital. Do you think that this appropriate? Why or why not?

Reference no: EM131488436

Questions Cloud

Estimate the divisional costs of capital : Divisional costs of capital and investment decisions) In May of this year Newcastle Mfg. Company's capital investment review committee received two major.

Create the research section of your marketing plan : Explain the insights you have gained from your inspection and analysis of the demographic and psychographic information you have found.

Write an assessment of the marketing mix : Prepare a market segmentation analysis to define potential consumers for this product. Write an assessment of the marketing mix.

Define statistics with citation and reference : Define statistics with citation and reference. Contrast quantitative data and qualitative data. Use two Peer Reviewed references.

Estimate wacc for both divisions : (Divisional costs of capital and investment decisions) Star Corporation is a provider of computer software and IT services in two large regions.

Describe the levels of data measurement : Describe the levels of data measurement. Describe the role of statistics in business decision-making.

Develop a comprehensive mission statement for the clinic : The Primary Care Clinic- Develop a comprehensive mission statement for the clinic, and discuss how it will facilitate the provision of quality services.

Differences among the theories of goal setting : Compare and contrast the significant similarities and differences among the theories of goal setting, self-efficacy, and reinforcement.

Popular in the modern computing age : Determine why menu-driven interfaces continue to be popular in the modern computing age.

User Account

All Pages