Q 12.33. A perpetual firm's headquarters consumes $1 million per year. It has six divisions of equal
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Q 12.33. A perpetual firm's headquarters consumes $1 million per year. It has six divisions of equal size, but not equal profitability. The annual profitabilities (in thousands of dollars) are as follows:
The cost of capital is r = 10%. 1. What is the firm's NPV? 2. If the firm adopts a rule whereby each division has to carry its fair (size-based) share of the headquarter overhead. (Assume that the total amount of overhead does not decrease unless the whole firm is closed, in which case the over- head is 0.) What is the firm's NPV?
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