Ask Question
BusinessBusiness
31 December, 13:43

International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an after-tax cost of debt of 6.1 percent and a cost of equity of 14.3 percent. The firm is financed with 37 percent debt and 63 percent equity. Division A's projects are assigned a discount rate that is 2.2 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to Division A

+4
Answers (1)
  1. 31 December, 13:44
    0
    Answer: 9.07%

    Explanation:

    The Weighted Average Cost of Capital is essentially how much it costs a company to raise all the capital it has including long term debt and equity.

    It is calculated by weighing each category of capital with their cost to find the Weighted Average.

    In this scenario therefore it will be calculated by,

    = 0.37 (0.061) + 0.63 (0.143)

    = 0.02257 + 0.09009

    = 0.11266

    = 11.27%

    It is said that Division A's projects are assigned a discount rate that is 2.2 percent less than the firm's weighted average cost of capital. That would be,

    = 11.27 - 2.2

    = 9.07%

    The discount rate applicable to Division A is 9.07%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
Ralph's pretty good grocery has been making an effort to diversify their workforce. new hires are encouraged to learn the organization's norms and values as quickly as possible to ensure job security.
Answers (1)
Which of the following statements is most likely true regarding economic and accounting profits? A) Economic profits are generally less than accounting profits. B) Economic profits plus accounting profits generally equal zero.
Answers (1)
Currency is A. an adjective for current news. B. Stock and Bonds C. Paper bills and coins D. Government - issued bank checks
Answers (1)
Groups that make decisions about managing and carrying out major production activities, but still get outside support for quality control and maintenance are referred to as:
Answers (1)
An entrepreneur is someone who starts and runs a business. is an employee of a business. invents products for other businesses. works for multiple developing businesses.
Answers (1)
New Questions in Business
What causes a change in the demand curve or a shift
Answers (2)
Glenda, a sales representative for revo appliances inc., had to deliver a presentation on her company's latest offering: an innovative food processor. her target clients were senior managers and chefs from a reputed restaurant.
Answers (1)
To discover the extent to which economic status can be used to predict political preferences?
Answers (1)
In the current year, Mitchell Manufacturing expected Job No. 13 to cost $600,000 of overhead, $650,000 of materials, and $400,000 of labor. Mitchell applied overhead based on direct labor cost.
Answers (1)
Cullumber Company has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,000, 6%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2.
Answers (1)
Home » Business » International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an after-tax cost of debt of 6.1 percent and a cost of equity of 14.3 percent.
Sign Up Forgot Password?