CORPORATE FINANCE ACCESS CARD
CORPORATE FINANCE ACCESS CARD
12th Edition
ISBN: 2810023360184
Author: Ross
Publisher: MCG
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Chapter 9, Problem 10QAP
Summary Introduction

To calculate: Stock price, and the stock price if the benchmark PE was 21 .

Introduction: The price at which a share of stock is currently trading on the market is referred to as the stock price.

PE ratio is the ratio to the value of a firm that compares its market price/current share price to its earnings per share (EPS). PE ratio is the price-to-earnings ratio.

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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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CORPORATE FINANCE ACCESS CARD

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