Expands into consumer products division

Assignment Help Financial Management
Reference no: EM131975923

Suppose Chance Chemical Products management conducts a study and concludes that if it expands into a consumer products division (which is less risky than its primary business of industrial chemicals), the firm's beta would decline from 1.2 to 0.9.  However consumer products have a somewhat lower profit margin, and this would cause Chance's constant growth rate in earnings and dividends to fall from 7 to 5 percent. Should management undertake this change assuming that the average market return is 12% will the rate on Treasury notes is 9%?  Chance has just paid a dividend of $2.

Write your recommendation taking into account some of the general issues involved in the assessment (eg. principles involved in company diversification, estimation of beta's etc.)

Reference no: EM131975923

Questions Cloud

What is the firms cost of capital for the levered equity : A firm can be worth $100 million (with 20% probability), $200 million (with 60% probability), or $300 million (with 20% probability).
What is the promised payment on the bond : A firm will be worth (next year) either $50, $100, or $150, with probabilities 1/3, 1/3, and 1/3, respectively. Assume that this type of firm has an overall.
Find what is the crossover point : Finally, how would you determine which project to choose between two mutually exclusive projects? What is the Crossover Point? Explain why choosing the option.
Gas-powered and electric powered forklift truck : Davis Industries must choose between a gas-powered and an electric powered forklift truck for moving materials in its factory.
Expands into consumer products division : Suppose Chance Chemical Products management conducts a study and concludes that if it expands into a consumer products division
What must total asset turnover be : A firm wishes to maintain an internal growth rate of 9.5 percent and a dividend payout ratio of 42 percent. The current profit margin is 6.4 percent.
Thinking about making some life changes : As a financial advisor you have a high wealth client who is thinking about making some life changes.
How much are you willing to pay today to buy one share : The first dividend will be paid next year in the amount of $1.28 a share. The following dividends will be $1.74, $1.12, and $2.72 a share annually.
What is the company weighted average cost of capital : What is the company’s weighted average cost of capital?

Reviews

Write a Review

Financial Management Questions & Answers

  Growth rate could be supported with no outside financing

You’ve collected the following information about Odyssey, Inc.: Sales $ 165,000 Net income $ 14,800 Dividends $ 9,300 Total debt $ 68,000 Total equity $ 51,000. What is the sustainable growth rate for the company? What growth rate could be supported ..

  What would be total return of bond in percentage and dollars

A 8.7 percent coupon bond with 19 years left to maturity is priced to offer a 6.85 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.5 percent. What would be the total return of the bond in dollars? What would b..

  Using the dividend growth model-price of the company stock

Using the dividend growth model. what should be the price of the company's stock today (December 31, 2013)?

  Price and yield

An 8% semiannual coupon bond matures in 6 years. The bond has a face value of $1,000 and a current yield of 8.2123%. What is the bond's price? What is the bond's YTM?

  High level of confidence at beginning of project

Which of the following are usually known with a high level of confidence at the beginning of a project? A. The number of units that will be sold B. The price per unit that will result in the desired number of units sold C. Tax rates and depreciation ..

  Edgar cash flow statement for corporations

How do you read an Edgar cash flow statement for corporations.

  What is the projects NPV and What is the projects IRR

Lewis Finance Investor Group, Inc. is considering a new project, which would include opening a college textbook store approximately 2 miles north of campus on Rt. 53. The initial investment (outflow) will include inventory, land and a building. What ..

  What is the present value of the future earnings

Newson Corp is predicting net income of $50,000 this year and expects this amount to increase by $4,000 every year into the future. If the 30-year government bonds are paying 6.5% and there are 100,000 shares outstanding, what is the present value of..

  Assuming ferrell price and earnings ratio remains

Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now?

  Compute road-master inc free cash flow

Compute “Road-Master Inc.”’s free cash flow for 2016, and its Return On Invested Capital (ROIC) for the years 2015, and 2016.

  What is the? bond expected rate of? return

ExxonMobil 9?-year bonds pay 12 percent interest annually on a ?$1,000 par value. If the bonds sell at $1,175, what is the? bonds' expected rate of? return?

  What is appropriate price that paramount landscape services

Paramount Landscape Services is considering the acquisition of Barker Gardens, Inc. Paramount's management team believes Barker can generate cash flows of $187,000, $220,000, and $245,000 over the next three years, respectively. After that time, they..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd