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1. A company has two open seats, Seat A and Seat B, on its board of directors. There are six candidates vying for these 2
1. A company has two open seats, Seat A and Seat B, on its board of directors. There are six candidates vying for these 2 positions. There will be a single election to determine the winner of both open seats. As the owner of 10,000 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 20,000 of your votes for a single candidate
2. Global Production (GP) is a large conglomerate thinking of entering the smart alarm business, where it plans to finance a project with a debt-to-value ratio of 20 percent (or a debt-to-equity ratio of 1/4). There is currently one firm in the smart alarm industry, American Smart Alarm (ASA). This ASA firm is financed with 25 percent debt and 75 percent equity. The beta of ASA’s equity is 1.8. ASA has a borrowing interest rate of 14 percent, and GP expects to borrow for its smart alarm venture at 11 percent. The corporate tax rate for both firms is 35 percent, the market risk premium is 8 percent, and the risk-free rate is 5 percent. What is the appropriate discount rate (RWACC) for GP to use for its smart alarm venture?
2. Global Production (GP) is a large conglomerate thinking of entering the smart alarm business, where it plans to finance a project with a debt-to-value ratio of 20 percent (or a debt-to-equity ratio of 1/4). There is currently one firm in the smart alarm industry, American Smart Alarm (ASA). This ASA firm is financed with 25 percent debt and 75 percent equity. The beta of ASA’s equity is 1.8. ASA has a borrowing interest rate of 14 percent, and GP expects to borrow for its smart alarm venture at 11 percent. The corporate tax rate for both firms is 35 percent, the market risk premium is 8 percent, and the risk-free rate is 5 percent. What is the appropriate discount rate (RWACC) for GP to use for its smart alarm venture?
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