C09mt-Fall2009-solution.doc

C09mt-Fall2009-solution.doc - MGTC09 L01, L02, L03 Midterm...

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ANSWER 1: a. ) ( f m s f s r r r r DHL DHL - + = β = 0.05 + 1.1(0.06) = 0.116 = 11.6% 5 = - + = ) 1 ( c B s WACC T r V B r V S r DHL DHL 0.4(11.6) + 0.6(8)(1-0.4) = 7.52% b. DHL should select P-1 IRR = 8% Investment = $20,000,000 T-1 7.6 40,000,000 5 T-2 8.1 60,000,000 F-1 8 100,000,000 F-2 7.9 120,000,000 Capital Budget $340,000,000 c. % 8 . 9 098 . 0 ) 06 . 0 ( 8 . 0 05 . 0 = = + = GWP s r 7.5 % 3 . 7 07 . 0 ) 4 . 0 1 )( 8 ( 5 . 0 ) 8 . 9 ( 5 . 0 = = - + = GWP WACC r % 8 . 12 128 . 0 ) 06 . 0 ( 3 . 1 05 . 0 = = + = GCT s r % 8 08 . 0 ) 4 . 0 1 )( 8 ( 6 . 0 ) 8 . 12 ( 4 . 0 = = - + = GCT WACC r % 8 . 15 158 . 0 ) 06 . 0 ( 8 . 1 05 . 0 = = + = BFS s r % 1 . 8 081 . 0 ) 4 . 0 1 )( 8 ( 7 . 0 ) 8 . 15 ( 3 . 0 = = - + = BFS WACC r d. DHL Should select P-1 IRR = 8% Investment = $20,000,000 P-2 7.4 30,000,000 5 T-2 8.1 60,000,000 Capital Budget $110,000,000 e. DHL should select projects, selected in part d, because divisional cost of capital reflects the true riskiness of each project. 2.5
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C09mt-Fall2009-solution.doc - MGTC09 L01, L02, L03 Midterm...

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