Purchase Solution

Risk Adjusted Required Rate of Return, Capital Budgets and Common Stock.

Not what you're looking for?

Ask Custom Question

1. Your company's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, it's fresh produce division has average risk, and its institutional foods division has below-average risk. Your company adjusts for both divisional and project risk by adding or subtracting 2 percentage points. Thus, the maximum adjustment is 4 percentage points. What is the risk-adjusted required rate of return for a low-risk project in the yogurt division?

2. Your company has a capital structure that consists of 20% equity and 80% debt. The company expects to report $3 Million in net income this year, and 60% of the net income will be paid out as dividends. How large can the firm's capital budget be this year without it having to issue any new common stock?

Purchase this Solution

Solution Summary

Detailed notes and computation to assist you in learning these concepts.

Solution Preview

The WACC is simply the cost of the several types of capital (called capital components) used by a firm, weighted by their proportions in the firm's capital structure. In order to calculate the WACC, the analyst has to estimate
the cost of debt
the cost of preferred stock, and
The cost of common stock

Risk exists because of the inability of the decision-maker to make perfect forecasts. In formal terms, the risk associated with an investment may be defined as the variability that is likely to occur in the future returns ...

Purchase this Solution

Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations


This tests some key elements of major motivation theories.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.