Question

Your company has 2 divisions: One division sells software and the other division sells computers through...

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?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Your company has two? divisions: One division sells software and the other division sells computers through...
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...
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...
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...
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 4.6%​, 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...
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...
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...
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...
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....
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...
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...