FINANCIAL MANAGEMENT(LL)-TEXT
FINANCIAL MANAGEMENT(LL)-TEXT
16th Edition
ISBN: 9781337902618
Author: Brigham
Publisher: CENGAGE L
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Chapter 18, Problem 14MC
Summary Introduction

Case summary: Person R wants to expand its business by raising $18.3 million through sell of common stock. The business has 50% of debt ratio and family of Person R invested personal wealth into the business. The family wants to retain controlling right.

To describe: The ways used to raise capital other than IPO.

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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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