Old MathJax webview

Old MathJax webview

B. What is the appropriate discount rate for NPV decisions in its software division?

Assume Risk free rate = 3% Equity market premium = 7 % Tax rate =21%

Assume Risk free rate = 3% Equity market premium = 7 % Tax rate =21%

UMW inc. has an overall expected equity cost of capital of 12%, market value of equit of $8 billion, and market value of debt of $2 billion with a cost of debt equal to 3% It is composed of two divisions: One division sells software and the other division sell computers. Each division represents 50% of the total firm. You have decided tha Hewlett Packard is very similar to your computer division, in terms of both risk an inancing. You go online and find the following information: Hewlett Packard's equit peta is .8, its market value of equity is $90 billion, and it has $10 billion worth of debt UMW inc. has an overall expected equity cost of capital of 12%, market value of equit of $8 billion, and market value of debt of $2 billion with a cost of debt equal to 3% It is composed of two divisions: One division sells software and the other division sell computers. Each division represents 50% of the total firm. You have decided tha Hewlett Packard is very similar to your computer division, in terms of both risk an inancing. You go online and find the following information: Hewlett Packard's equit peta is .8, its market value of equity is $90 billion, and it has $10 billion worth of debt