What risk adjusted rate of return is appropriate

Assignment Help Financial Management

Reference no: EM131337078

The Super Muench Cookie Company is considering a diversification effort that would move it into small outlets at major malls around the country. Currently, Super Muench has a capital structure consisting of 30 percent debt and 70 percent equity. Super Muench believes that for the riskier retail outlet portion of its business, a more conservative capital structure of 20 percent debt and 80 percent equity is more appropriate. Super Muench's current pretax cost of debt is 12 percent. The firm's average tax rate is 30 percent and its marginal tax rate is 40 percent.

Another retail cookie company, Dietz's Dessertery, has been identified. Dietz has a beta (leveraged) of 1.2. Dietz's current capital structure consists of 40 percent debt and 60 percent equity. Dietz's tax rate is 40 percent. The risk-free rate is 7 percent and the market risk premium is 7.4 percent.

Super Muench wants to know what risk-adjusted rate of return is appropriate for investments in its retail outlets.

Reference no: EM131337078

Questions Cloud

Simplicity of theory x theory y with the complexity : In 750-1000 words, contrast the simplicity of Theory X Theory Y with the complexity with more contemporary theories such as self-determination and cognitive evaluation.

Identify causes of variation : Control chart, also known as a Shewhart chart is a time plot measure of quality utilized to identify causes of variation (Sharpe, et al, 2015). In other words, a control chart enables data to be observed over time and leveraged for business actio..

Mastermind change in an organization : In 1,200 - 1,500 words, describe how to "mastermind" change in an organization. Select an organization you feel needs to change and address the following: Select on of the following approaches to organizational change: Lewin, Kotter, Action Resear..

Describe how collaboration is fostered in the organization : Describe how collaboration is fostered in this organization. Give three specific examples of how a particular leader fostered collaboration among members.

What risk adjusted rate of return is appropriate : Super Muench wants to know what risk-adjusted rate of return is appropriate for investments in its retail outlets.

Customer-focused measures-workforce-focused measures : Compare and contrast Customer-Focused Measures versus Workforce-Focused Measures. Please provide examples from your own experiences. If, you do not have any experiences, please provide what these concepts look like within an organization.

What is the net present value of the project if the required : HealthWorks Inc, a chain of workout facilities, is looking at a new type of exercise equipment for all of its stores. The total amount of investment (an immediate outflow) will be $300 today and the equipment is expected to last for 5 years with no s..

Compute the new least-squares regression line : Construct a two-way scatter plot of birth weight versus length for the 20 infants in the sample. Without doing any calculations, sketch your best guess for the least-squares regression line directly on the scatter plot.

Determine the heat transfer by free convection : A horizontal, 25-mm diameter cylinder is maintained at a uniform surface temperature of 35°C. A fluid with a velocity of 0.05 m/s and temperature of 20°C is in cross flow over the cylinder.

User Account

All Pages