CFIN -STUDENT EDITION-ACCESS >CUSTOM<
6th Edition
ISBN: 9780357752951
Author: BESLEY
Publisher: CENGAGE C
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Chapter 10, Problem 7PROB
Summary Introduction
Supplemental operating cash flows: Supplemental operating cash flows is also called as cash flow from operations. This are cash flows which are generated from the companies operating activities.
Three years MACRS rates, Year 1: 33.33%, Year 2: 44.45%, Year 3: 14.81% and Year 4: 7.41%.
CC is considering the purchase of an asset that generates revenue of 30,000, cost of assets is $120,000 and Asset is classified as three years MACRS class.
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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
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