Question

Your company has 2 divisions: One division sells software and
the other division sells computers through a direct sales channel,
primarily taking orders over the web. You have decided that Dell
Computer is very similar to your computer division, in terms of
both risk + financing. You go online and find the following info:
Dells beta is 1.21, the risk-free rate is 4.5%, its market value of
equity is $67 billion, and it has $700 million worth of debt with a
yield to maturity of 6%. Yours tax rate is 35% and you use a market
risk premium of 5% in your WACC estimates.

a. What is an estimate of the WACC for your computer sales
division?

b. If your overall company WACC is 12% and the computer sales
division represents 40% of the value of your firm, what is an
estimate of the WACC for your software division?

Answer #1

Your company has two? divisions: One division sells software and
the other division sells computers through a direct sales? channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer? division, in terms
of both risk and financing. You go online and find the following?
information: Dell's beta is 1.16, the? risk-free rate is 4.4%?, its
market value of equity is $65.8 billion, and it has $699 million
worth of debt with...

Your company has two divisions: One division sells software and
the other division sells computers through a direct sales channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer division, in terms
of both risk and financing. You go online and find the following
information: Dell's beta is 1.22, the risk-free rate is 4.7%,
its market value of equity is $65.6 billion, and it has $694
million worth of debt with...

Your company has two divisions: One division sells software and
the other division sells computers through a direct sales channel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computer division, in terms
of both risk and financing. You go online and find the following
information: Dell's beta is 1.18, the risk-free rate is 4.3 %,
its market value of equity is $ 65.6 billion, and it has $ 709
million worth...

Your company has two divisions: One division sells software and
the other division sells computers through a direct saleschannel,
primarily taking orders over the internet. You have decided that
Dell Computer is very similar to your computerdivision, in terms
of both risk and financing. You go online and find the following
information: Dell's beta is
1.16,
the risk-free rate is
4.6%,
its market value of equity is
$66.4
billion, and it has
$703
million worth of debt with a yield...

Sigma Investment Ltd (SIL) is a provider of computer software
and information technology services in two large regions of South
East Asia, where its two divisions are located. The company uses a
market rate of 11% to evaluate investments; however, based on
recent management reports, it realized that the two divisions have
a quite different risk and return profiles. In fact, comparable
companies for division 1 have equity betas of 1.5 while for
companies in division 2 it is about...

The Duffy Dog Book Company has two divisions: The Brick and
Mortar division sells books through more than 100 bookstores
throughout the United States; the Internet division was formed 18
months ago and sells books via the Internet. Data for the past year
are:
Brick and Mortar
Division
Internet
Division
Total assets
$207,360,000
$19,814,400
Noninterest-bearing current liabilities
8,985,600
3,225,600
Interest expense
1,612,800
535,680
Net income (loss)
35,596,800
(1,440,000
)
Tax rate
20%
0
Cost of capital
10%
12%
Evaluate the...

XYZ Corporation has a company with two divisions. Division A
manufactures a product that has a variable cost of $6, sales price
to the market of $12 and has a capacity to produce 30,000 units and
its fixed costs are $60,000. Current production is 20,000
units.
a) 6% - Division B wants to purchase from Division A 5000 units
at $7 per unit. Currently it pays $10 per unit to purchase these
units from the market. What would you advise...

1. Spring 20 Company has two divisions. Division A
manufactures a part that sells for $90 with a variable cost of $40.
Fixed cost per unit of the part is $20. Division B wants to
purchase the part from Division A. What is the minimum
transfer price if Division A is operating at capacity?
2.
Spring 20 Company manufactures lamps. The company
expects to sell 2,000 lamps for $100 each in April and 2,400 lamps
for $110 each in May. Sales...

Seedlings, Inc. has two divisions -- Retail and Nursery. The
Retail division sells plants and supplies. The Nursery division
takes tree seedlings and grows them to healthy young plants before
selling the plants internally to the Retail division and to outside
commercial customers. The Nursery division's variable costs are $4
per plant, and each plant is sold to outside customers for $6. Each
division manager is evaluated based on overall company profit
rather than profit produced by each division.
Assume...

23.
Fyodor Corporation has a Parts Division that does work for other
Divisions in the company as well as for outside customers. The
company's Machine Division has asked the Parts Division to provide
it with 8,400 special parts each year. The special parts would
require $33 per unit in variable production costs.
The Machine Division has a bid from an outside supplier for the
special parts at $47.40 per unit. In order to have time and space
to produce the...

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