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Nitella [24]
3 years ago
14

Laramie Labs uses a risk-adjustment when evaluating projects of different risk. Its overall (composite) WACC is 10%, which refle

cts the cost of capital for its average asset. Its assets vary widely in risk, and Laramie evaluates low-risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projects:
Project

Risk

Expected Return

A

High

15%

B

Average

12%

C

High

11%

D

Low

9%

E

Low

6%


Which set of projects would maximize shareholder wealth?

a.A and B.

b.A, B, and C.

c.A, B, and D.

d.A, B, C, and D.

e.A, B, C, D, and E
Business
1 answer:
Kobotan [32]3 years ago
6 0

Answer:

A, B, and D.

Explanation:

According to the scenario, computation of the given data are as follows:-  

We will have to compare the WACC with the expected return, to find out that which set of project will maximize the shareholder’s wealth.

Particular Risk WACC(required return) (%) Expected Return (%) Select/Reject Reason

Project A High 12 15 Select  WACC is less than expected return.

Project B Average  10 12 Select  WACC is less than expected return.

Project C High  12 11 Reject  WACC is more than expected return.

Project D Low  8 9 Select  WACC is less than expected return.

Project E Low  8 6 Reject  WACC is more than expected return.

     

According to the analysis, option C (project A,B and D) should be selected to maximize shareholder’s wealth.

 

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mart [117]

Answer:

Explanation:

1. To find the cost per unit of production, first we find the total cost. So we multiply the unit of each factor used times its cost.

capital: 2*$10=$20

raw materials: 5*$4=$20

labour: 8*$3=$24

Total cost: $20+$20+$24=$64

Then we divide the total cost over the total units produced:

Cost per unit: $64/640=$0,1 Answer is B

2. If the cost per unit of raw materials increases from $4 to 8$. Then the total cost of production will be:

capital: 2*$10=$20

raw materials: 5*$8=$40

labour: 8*$3=$24

Total cost: $20+$40+$24=$84

To find how much the cost per unit will rise, to find how much it rises

64$→100%

$84←x

x=($84*100%)/$64=131.2%

131.2%-100=31.2%. The answer is B

3. Because there is a change in raw materials, then there would be changes in the supply demand.  In this case, the total cost and the cost per unit increased, then it is a negative shock to the supply demand. This is represented as a shift to the left. The answer is D

4 0
3 years ago
An increase in revenues increases net income, and net income increases stockholders’ equity. True or false?.
Mandarinka [93]
The answer is True, An increase in revenues increases net income, and net income increases stockholders' equity
8 0
1 year ago
In Year 8, Emil Gow won $5,000 in a state lottery. Also in Year 8, Emil spent $400 for the purchase of lottery tickets. Emil ele
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The amount of lottery winnings that should be included in Emil's Year 8 taxable income is: $5,000.

<h3>What is taxable income?</h3>

Taxable income can be defined as the income that are reduce by tax or other deduction.

Since we were told that the amount of $5,000 was won in the state lottery, which means that the amount of lottery winnings that should be included in Year 8 taxable income is will be the total or the whole amount of the gambling winnings which is $5,000.

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7 0
2 years ago
According to the textbook, Nucor in steel, JetBlue in airlines, and Cirque du Soleil in circuses are examples of entrepreneurial
leva [86]

Options available are:

A) fragmented

B) emerging

C) declining

D) global

E) mature

Answer:

C) Declining

Explanation:

The reason is that these companies have greater knowledge of the industry than the other companies that are entering the market. Furthermore, the industry is also in decline phase which means that the market entrants are afraid of entering the market and that the old companies like JetBlue, Nucor and Cirque du Soleil have better brand recognition which helps them make sales.

8 0
3 years ago
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lara [203]

Answer:

B) $5,000

Explanation:

Under Section 1014 (a) the basis of any property acquired by a decedent (Lynn) through a gift within 1 year of death and passed back to the donor (Edwin) due to the decedent's death, will be adjusted to the basis immediately prior to the death.

In other words, since Lynn died within 1 year of receiving Edwin's gift, Edwin's basis will be the same as Lynn's basis.

4 0
3 years ago
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