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 1.21, the risk-free rate is 4.1%, its market value of equity is $66.5 billion, and it has $692 million worth of debt with a yield to maturity of 6.4%. Your tax rate is 35% and you use a market risk premium of 5.8% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACCC is 12.2% and the computer sales division represents 45% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield. a. What is an estimate of the WACC for your computer sales division? The weighted average cost of capital for your computer sales division is %. (Round to two decimal places.)

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 1.21, the risk-free rate is 4.1%, its market value of equity is $66.5 billion, and it has $692 million worth of debt with a yield to maturity of 6.4%. Your tax rate is 35% and you use a market risk premium of 5.8% in your WACC estimates. a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACCC is 12.2% and the computer sales division represents 45% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield. a. What is an estimate of the WACC for your computer sales division? The weighted average cost of capital for your computer sales division is %. (Round to two decimal places.)

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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You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Lauryn's asset 1.22 x beta
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, faF, is 3%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet What would be SSC's estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps. Check My Work Reset Problem @om ई
You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.4, a debt-to-equity ratio of .5, and a tax rate of 21 percent. Assume a risk-free rate of 4 percent and a market risk premium of 9 percent. Lauryn’s Doll Co. had EBIT last year of $42 million, which is net of a depreciation expense of $4.2 million. In addition, Lauryn's made $6 million in capital expenditures and increased net working capital by $1.0 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
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There are two states of the world tomorrow. With probability 1/6, the economy will be good. With probability 5/6, the economy will be bad. IBM stock return will be 15% if the economy is good, 1% if the economy is bad. Dell stock return will be 25% if the economy is good, −10% if the economy is bad. You own $1,000 of IBM and $3,000 of Dell. What is the expected return of your portfolio? What are the covariance and correlation of IBM and Dell stock returns? What is the variance of your portfolio? Please answer fast i give you upvote.
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Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year - end 2021. Also assume that the firm's equity beta is 1.40, the risk - free rate is 2.60 percent, and the market risk premium is 8.0 percent. Dividends per share $ 2.44 Return on equity 10.50% Book value per share $ 20.05 Earnings Cash Flow Sales 2021 value per share $ 5.00 $ 6.40 $ 25.65 Average price multiple 13.10 9.62 2.56 Forecasted growth rate 13.68% 11.21% 7.39% Using the PE, P/CF, and P/S ratios, estimate the 2022 share price for Beagle Beauties. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. DO NOT USE EXCEL please leave a key for the formula thank you
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11. 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 Hewlett Packard is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Hewlett Packard's beta is 1.18, the risk-free rate is 4.7%, its market value of equity is $67.6 billion, and it has $694 million worth of debt with a yield to maturity of 5.9%. Your tax rate is 25% and you use a market risk premium of 5.9% in your WACC estimates. **round to two decimal places** a. What is an estimate of the WACC for your computer sales division? b. If your overall company WACC is 12.9% and the computer sales division represents 36% of the value of your firm, what is an estimate of the WACC for your software division? Note: Assume that the firm will always be able to utilize its full interest tax shield.

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