QuestionQuestion

Question 2. Break-even quantity
Use the information on the table below to find the break-even quantity for a company that cultivates abalone for sale to local restaurants. Assume the company has a discount rate of 15%, and that the project has an initial investment of $840,000. Further assume that the equipment is depreciated using straight-line over the project’s 7 year life.

Sales price per abalone          $35
Variable cost per abalone       $6.10
Annual Fixed Costs                  $375,000
Tax Rate                                  .35


Question 3.
You have been hired to estimate the beta for HP and have broken the company down into 4 broad business groups. The market values and equity betas for each group are shown on the table below:
                                  Division‘s equity                                             Market Value
Business Group         Market Value               Asset Beta                Division Debt
                                  (in $billions)                                                    (in $billions)

Mainframes                     $2.0                            1.10                            $0.75
Personal Computers      $2.0                            1.50                            $0.50
Software                         $1.0                            2.00                            $1.00
Printers                           $3.0                            1.00                            $1.25


(a) Estimate the equity beta for HP as a company.
(b) If the market risk premium is 5% and the T-Bond rate is 2%, determine how much of the return HP’s shareholders’ earn is due to business (asset) risk, and how much is due to financial risk.
(c) Compute HP’s WACC

Solution PreviewSolution Preview

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

Finance Questions
    $15.00 for this solution

    PayPal, G Pay, ApplePay, Amazon Pay, and all major credit cards accepted.

    Find A Tutor

    View available Finance Tutors

    Get College Homework Help.

    Are you sure you don't want to upload any files?

    Fast tutor response requires as much info as possible.

    Decision:
    Upload a file
    Continue without uploading

    SUBMIT YOUR HOMEWORK
    We couldn't find that subject.
    Please select the best match from the list below.

    We'll send you an email right away. If it's not in your inbox, check your spam folder.

    • 1
    • 2
    • 3
    Live Chats