Case 2: Chestnut Foods Risk-Adjusted Hurdle Rate The implications of Figure 1 for divisional capital allocation at Chestnut Foods. Capital allocation under single hurdle rate and risk-adjusted hurdle rate. Would allocating capital on the basis of the risk-adjusted hurdle-rate system create or destroy value? Would allocating capital on the basis of the single hurdle- rate system create or destroy value? Potential problems of applying single hurdle rate to divisions with different risks. The potential implementation issues of using risk-adjusted hurdle rate. Understand the difference between asset beta (unlevered beta) and equity beta (levered beta) Explain the three steps of calculating bottom-up beta. Use industry comparable companies' equity beta to estimate bottom-up beta for each division, and then calculate the Food and Instruments divisional cost of equity and risk- adjusted cost of capital. Use industry comparable companies' WACCs to estimate Food and Instruments divisional risk-adjusted cost of capital Calculate the Food and Instruments divisions' Economic Value Added (EVA). Case 2: Chestnut Foods Risk-Adjusted Hurdle Rate The implications of Figure 1 for divisional capital allocation at Chestnut Foods. Capital allocation under single hurdle rate and risk-adjusted hurdle rate. Would allocating capital on the basis of the risk-adjusted hurdle-rate system create or destroy value? Would allocating capital on the basis of the single hurdle- rate system create or destroy value? Potential problems of applying single hurdle rate to divisions with different risks. The potential implementation issues of using risk-adjusted hurdle rate. Understand the difference between asset beta (unlevered beta) and equity beta (levered beta) Explain the three steps of calculating bottom-up beta. Use industry comparable companies' equity beta to estimate bottom-up beta for each division, and then calculate the Food and Instruments divisional cost of equity and risk- adjusted cost of capital. Use industry comparable companies' WACCs to estimate Food and Instruments divisional risk-adjusted cost of capital Calculate the Food and Instruments divisions' Economic Value Added (EVA)