Question
Fantastic Furniture is experiencing growth over the last few years. Fantastic Furniture's dividends over last few years are: Year Dividend (in $) 2016
Fantastic Furniture is experiencing growth over the last few years. Fantastic Furniture's dividends over last few years are:
Year Dividend (in $)
2016 2.7000
2017 2.9160
2018 3.1492
2019 3.4012
2020 (current year) 3.6733
In line with it's growth, Fantastic Furniture is considering undertaking an additional investment for expanding their current business operation. It is considering either to have "Computer Division" or "Home Appliance Division". The new projects' cash flows are as follows:
Computer Division Home Appliance Division
Year: 0 -200,000 Year: 0 - 150,000
1 +100,000 1 + 65,000
2 + 80,000 2 + 65,000
3 + 90,000 3 + 65,000
The current total market value of the company's shares is$10 million, ex div; and the company currently has 200,000 shares outstanding. The company has a beta of 1.077.
The Computer industry has a beta of 2.1 and the Home Appliance industry has a beta of 0.90. The annual return on three year government bonds is currently 3% and the expected return on the ASX stock market index is 15%. Ignore tax.
Find out the following: (Select the closest answer)
The cost of equity is which of the following 15.94% 16.37% 13.81% 28.21% 18.20% .
Using DVM, the average annual growth rate is which of the following 8.15% 7.85% 7.99% .
Using CAPM the original cost of capital for Home Appliance Division is which of the following 15.94% 16.37% 13.81% 28.21% 18.20% .
Using Cost of capital as the discount rate, we will accept which of the following Computer Division or Home Appliance Division .
Using individual company's CAPM as discount rate, we will accept which of the following Computer Division or Home Appliance Division .
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