CORP FIN--CONNECT ONLY+PROCTORIO+180 DAY
12th Edition
ISBN: 9781266118562
Author: Ross
Publisher: MCG
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Chapter 6, Problem 34QAP
Summary Introduction
Adequate information:
Salvage value = $150,000
Cost of equipment (C) = $2,100,000
Fixed cost (FC) = $650,000
Net working capital (NWC) = $325,000
Variable cost per unit (V) = $9.45
Useful life of equipment = 5 years
Number of cartons (Q) = 145,000
Tax rate (T) = 21% or 0.21
Required
To compute: Bid price of the contract
Introduction:
Bid price refers to the price which the investors are willing to pay for the purchase of security, commodity, or contract.
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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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Chapter 6 Solutions
CORP FIN--CONNECT ONLY+PROCTORIO+180 DAY
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