The two units of Woodandog Works are Wood Factory and Dog Factory. The market value of the Wood unit is 300 MC, and the industry's expected return is 20%. The Dog Factory's market value is 100 MC, and the industry's expected return is 40%. The company is funded by risk free credit by 40% of the company's market value, and it's expected return is 10%. a)Calculate the expected return of the company's assets and equityl b)How does the expected return of the equity change if the company invest another 100 M C in the Wood unit financed by further equity rising? Explain the causes of the change in the expected rate of return!

The two units of Woodandog Works are Wood Factory and Dog Factory. The market value of the Wood unit is 300 MC, and the industry's expected return is 20%. The Dog Factory's market value is 100 MC, and the industry's expected return is 40%. The company is funded by risk free credit by 40% of the company's market value, and it's expected return is 10%. a)Calculate the expected return of the company's assets and equityl b)How does the expected return of the equity change if the company invest another 100 M C in the Wood unit financed by further equity rising? Explain the causes of the change in the expected rate of return!

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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