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Please help ASAP (10) 6. The Tyler Company consists of two divisions. Tyler's Board of Directors is trying to evaluate divisional performance; the Board of
Please help ASAP
(10) 6. The Tyler Company consists of two divisions. Tyler's Board of Directors is trying to evaluate divisional performance; the Board of Directors' goal is to maximize shareholder value. You have the following information on the two divisions : Division #1 Division #2 Total Assets $100.00 $200.00 Net Operating Profit Before Tax $ 15.00 $ 20.00 ROI 15% 10% Asset Beta 1.34 .67 Notes: Dollar amounts are in millions. Return On Investment (ROI) is here defined as 'Net Operating Profit Before Tax' divided by Total Assets'. The Tyler Company pays tax at the rate of 30%. The Tyler Company is financed solely by common stock. The risk-free rate of interest (re) is 4%. The expected return on the market portfolio (rn) is 10%. The standard deviation of return on the market portfolio (om) is 22%. (A) Which division has the better performance, the one with the higher Return On Investment (ROI) or the one with the higher Net Operating Profit Before Tax? Briefly explain your answer. (B) The company has excess cash available, and management is trying to decide how best to use this cash. The company can either invest in one of its divisions, or it can pay out the cash as a dividend. Would you recommend the company invest in one of its divisions, and if so, which division would you recommend? Or, would you recommend the company use the cash to pay a dividend? Briefly explain your answer. (10) 6. The Tyler Company consists of two divisions. Tyler's Board of Directors is trying to evaluate divisional performance; the Board of Directors' goal is to maximize shareholder value. You have the following information on the two divisions : Division #1 Division #2 Total Assets $100.00 $200.00 Net Operating Profit Before Tax $ 15.00 $ 20.00 ROI 15% 10% Asset Beta 1.34 .67 Notes: Dollar amounts are in millions. Return On Investment (ROI) is here defined as 'Net Operating Profit Before Tax' divided by Total Assets'. The Tyler Company pays tax at the rate of 30%. The Tyler Company is financed solely by common stock. The risk-free rate of interest (re) is 4%. The expected return on the market portfolio (rn) is 10%. The standard deviation of return on the market portfolio (om) is 22%. (A) Which division has the better performance, the one with the higher Return On Investment (ROI) or the one with the higher Net Operating Profit Before Tax? Briefly explain your answer. (B) The company has excess cash available, and management is trying to decide how best to use this cash. The company can either invest in one of its divisions, or it can pay out the cash as a dividend. Would you recommend the company invest in one of its divisions, and if so, which division would you recommend? Or, would you recommend the company use the cash to pay a dividend? Briefly explain yourStep by Step Solution
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