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Problem: The Goodtread Rubber Company has the following two divisions. (i) Tire Division -- which manufactures tires for new autos (ii) Recap Division -- which manufactures recapping materials that are sold to independent recapping shops. Since auto manufacturing moves up and down with the general economy, the Tire Division's earnings contribution to Goodtread's stock price is highly correlated with the returns on most other stocks. If the Tire Division was operated as a separate company the beta of its assets would be 1.90. The sales and earnings of the Recap Division, on the other hand, are not as cyclical since recap sales are high when people cannot afford to buy new tires. The beta of Recap's assets is 0.60. Approximately 70% of Goodtread's corporate assets are in the Tire Division and 30% in the Recap Division. Goodtread has a debt/equity ratio of 0.5. Its debt is risk free. Currently, the risk free rate is 5% and the expected return on the market portfolio is 12%. There are no taxes and the assumptions of the CAPM are satisfied.
Required:
Question 1: What is the required rate of return on Goodtread's stock?
Question 2: What discount rate should Goodtread use to evaluate capital budgeting projects? Please answer the question by provide detail calculation process.
Determine the best sales mix. Rank the services offered in order of their profitability and based on the ranking in I, how much time should Ortiz spend on each service in a day
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 45,000 machine-hours and incur $180,000 in manufacturing overhead cost.
A company reports its 20B cost of good sold at $20.0 billion. its ending inventory for 20B is $1.8 billion and for 20A, ending was $1.5 billion. How much inventory did the company purchase during 20A?
prepare an income statement for Aardvark Company. Income and expense amounts are for the month of February 2017.
you are an accountant at a local cpa firm that is auditing the accounting records of abc company. you have been asked
Holt now feels the computer will be used until December 31, 2014, when it can be sold for $500 - Compute the 2013 depreciation.
Corporation issued 100,000 shares of $20 par value, cumulative, 8% preferred stock on January 1, 2009, for $2,100,000. In December 2011, AI declared its first dividend of $500,000.
Ken? Allen, capital budgeting analyst for Bally? Gears, Inc., has been asked to evaluate a proposal. The manager of the automotive division believes that replacing the robotics used on the heavy truck gear line will produce total benefits of $ 577,00..
Beginning accounts receivable were $10,000. All sales were on account and totaled $700,000. Cash collected from customers totaled $650,000. Calculate the ending accounts receivable balance.
Compute the predetermined overhead rate for each activity base
The commons stock of air united inc Han annual returns of 15.6%, 2.4%, -11.8%, and 32.9% over the last 4 years respectively. What is the standard deviation of these returns?
December 2009 because of liquidity problems which arose during December 2009 and which became public knowledge only with the default of the company's coupon payment.
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