Question
1- As a company uses more and more equity in its capital structure (and less debt) what is it doing to the financial risk of
1- As a company uses more and more equity in its capital structure (and less debt) what is it doing to the financial risk of the company increasing it or decreasing it?
2- You are running a company with two divisions. One division is high risk and the other division is low risk. Which division should (or is expected to) earn a higher rate of return or ROIC? Why?
3- You are running a company with two divisions. One division is high risk and the other division is low risk.
two divisions
Criteria Cost of Capital Expected Return on Proposed Projects
High risk division 10% 9%
Low risk division 6% 7%
Company average 8% blank
Which division should get additional funding for its proposed projects? Why?
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Introduction To Derivatives And Risk Management
Authors: Robert Brooks, Don M Chance, Roberts Brooks
8th Edition
0324601212, 9780324601213
