Principles of Corporate Finance
Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 29, Problem 24PS

Long-term financial plans Abbreviated financial statements for Archimedes Levers are shown in Table 29.16. If sales increase by 10% in 2018 and all other items, including debt, increase correspondingly, what must be the balancing item? What will be its value?

Chapter 29, Problem 24PS, Long-term financial plans Abbreviated financial statements for Archimedes Levers are shown in Table , example  1

TABLE 29.15 Financial statements for Drake’s Bowling Alleys, 2019 (figures in thousands). See Problem 23.

aAssets at the end of 2018 were $2,400,000.

bDebt at the end of 2018 was $500,000.

Chapter 29, Problem 24PS, Long-term financial plans Abbreviated financial statements for Archimedes Levers are shown in Table , example  2

TABLE 29.16 Financial statements for Archimedes Levers, 2018. See Problem 24.

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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?
Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference
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