Question

Analyze a company’s composite WACC and its divisional WACC? How to estimate its divisional beta?

Analyze a company’s composite WACC and its divisional WACC? How to estimate its divisional beta?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Composite weighted average cost of capital of company will be reflecting the risk of average project which has been undertaken by the company .

Composite weighted average cost of capital will be the cost of capital of entire company and it will be weighting out the divisional cost of capital.

Divisional weighted average cost of capital will be adjusting the risk associated with a particular division to the composite weighted average cost of capital and it will be finding out the a specific cost of capital associated with a particular division.

We can estimate the divisional beta by-

A. finding out various publicly traded company exclusively in the business of project

B. Using out the average of their beta as a proxy of the divisional beta

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively. Assume all current and future projects will be financed with 60 debt and 40 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 8 percent) is 15 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.7, 1.0, 1.4, and 1.6, respectively. Assume all current and future projects will be financed with 60 debt and 40 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 3 percent) is 12 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.6, 1.0, 1.3, and 1.6, respectively. Assume all current and future projects will be financed with 55 debt and 45 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 3 percent) is 14 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.0, 1.5, and 1.7, respectively. Assume all current and future projects will be financed with 50 debt and 50 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 6 percent) is 14 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.5, 1.0, 1.2, and 1.5, respectively. Assume all current and future projects will be financed with 50 debt and 50 equity, the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 8 percent) is 13 percent and the after-tax yield on...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.8, 1.2, 1.4, and 1.6, respectively. Assume all current and future projects will be financed with 20 percent debt and 80 percent equity, the current cost of equity (based on an average firm beta of 1.1 and a current risk-free rate of 7 percent) is 11 percent and the after-tax...
Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained...
Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm's bonds have a YTM of 6%. (2) The company’s tax rate is 30%. (3) The risk-free rate is 4%, the market risk premium is 5%, and the stock’s beta is 1.10. (4) The target capital structure consists of 30% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock,...
You want to estimate the Weighted Average Cost of Capital (WACC) for Costco Corp. The company’s...
You want to estimate the Weighted Average Cost of Capital (WACC) for Costco Corp. The company’s tax rate is 21% and it has the equity beta of 0.9. Its debt value is $14,727 million and the equity market value is $138,394 million. Its interest expense is $150 million. Assume that the risk-free rate is 3% and the market return is 10%. Based on the information, compute the WACC for Costco.
Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained...
Daves Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information. (1) The firm's bonds have a YTM of 6%. (2) The company’s tax rate is 30%. (3) The risk-free rate is 4%, the market risk premium is 5%, and the stock’s beta is 1.10. (4) The target capital structure consists of 30% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock,...
You need to estimate a WACC for a firm whose asset (unlevered) beta is 1. The...
You need to estimate a WACC for a firm whose asset (unlevered) beta is 1. The firm will be 50% debt financed and its cost of debt will be 7% based on a debt beta of 0.25 and a market risk premium of 8%. If the firm's corporate tax rate is 40%, what is the firm's WACC?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT