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Assume that the firm in 12 above can add a new division at a cost of $80,000, which will increase NOPAT by $15,200. Would the firm add the division?
a. Yes. Abnormal earnings would increase by $9,200, adding additional value to the firm.
b. Yes. This project has a positive net present value of more than $10,000, creating additional value to the firm.
c. No. This project creates additional abnormal earnings of $3,200, which is less than the 15% required return.
d. No. The discount rate may increase, causing the value of the firm to decline.
An asset has a 15% chance of a -10% return, a 25% chance of a 0% return, a 25% chance of a 5% returns, and a 35% chance of a 20% return. What is the expected rate of return of this asset?
Suppose rRF = 4%, rM = 9%, and rA = 16%. Calculate Stock A's beta. Round your answer to two decimal places. If Stock A's beta were 1.3, then what would be A's new required rate of return? Round your answer to two decimal places.
Explain the nature of groups and group behavior within organisations you identified and discuss factors that may promote or inhibit the development of effective teamwork in organisations you identified.
It is estimated that the annual sales of an energy saving device will be 25,000 the first year and increase by 10,000 per year until 55,000 units are sold during the fourth year. In the fifth year and each year thereafter the sales will decrease by 5..
Patton Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 9% and its marginal tax rate is 40%. The current stock price is P0 = $31.50. The last dividend was D0 ..
Billions of dollars are paid to financial advisors each year to earn a return that is superior to what an individual could earn on his or her own. John Bogle started the Vanguard Company and the first index mutual fund. Please discuss what index fund..
What are some practical limitations for a company in trying to maximize the amount of leverage (debt) used in the capital structure? Choose two companies in two different industries and compare their capital structure? Is there anything about the par..
The trustee of the Spratt Trust has the discretion to distribute the income or corpus of the trust in any proportion between the two beneficiaries of the trust, Edwin and Dolly. What amount income is recognized by the beneficiaries as the result of t..
Suppose you observe a 1-year zero-coupon Treasury security trading at a yield to maturity of 5%. You also have a 2-year T-note with a 6% coupon trading at a yield to maturity of 5.5%. And, finally, you observe a risk-free 3-year annuity with an annui..
Night Shades Inc. (NSI) manufactures biotech sunglasses. The variable materials cost is $10.00 per unit, and the variable labor cost is $5.50 per unit. a. What is the variable cost per unit? Suppose NSI incurs fixed costs of $500,000 during a year in..
Tangential is a AA+ rated company that is looking to issue bonds with a five year maturity. Their investment bank adviser has suggested that they issue a Yen 1 billion ‘high’ coupon bond which will be an attractive investment for Japanese pension fun..
Debt Management Ratios Calculate the times interest earned ratio for Linda's Hats, Inc. using the following information: sales = $50,000,000, cost of goods sold = $15,000,000, depreciation expense = $2,000,000, addition to retained earnings = $10,000..
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