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Unformatted text preview: The opposite is true if the spread is negative. j. KFS has two divisions. Both have current sales of $1,000, current expected growth of 5%, and a WACC of 10%. Division A has high profitability (OP=6%) but high capital requirements (CR=78%). Division B has low profitability (OP=4%) but low capital requirements (CR=27%). What is the MVA of each division, based on the current growth of 5%? What is the MVA of each division if growth is 6%? Answer: Division A Division B OP 6% 6% 4% 4% CR 78% 78% 27% 27% Growth 5% 6% 5% 6% MVA (300.0) (360.0) 300.0 385.0 + + = ) g 1 ( CR WACC OP g WACC ) g 1 ( Sales MVA t t...
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- Spring '08