Evaluate the divisional hurtle rates for division

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Reference no: EM13100530

1. Evaluate the divisional hurtle rates for each division. Suppose that all divisions use 45 percent debt ratio for this purpose.
2. Now suppose that, in divisions, projects are recognized as being high risk, average risk, or low risk. What hurdle rates would be assigned in those risk categories in each division?
3. How comfortable are you with 1.2 and 0.9 project risk-adjustment factors? Is there theoretical foundation for the size of these adjustments?
4. Do you agree with Kravitz on capital structure issue? How would your thinking be influenced if: (a) each division raised its own debt, that is, if divisions were set up as completely subsidiaries which when issued their own debt (in fact, Randolph raises debt capital at corporate level, and funds are then available by headquarters to various divisions); (b) divisions issued their own debt, but corporation guaranteed divisional debt; or (c) all debt was issued by corporation.

Reference no: EM13100530

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