Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets:
| Division | Beta | Proportion of Assets |
| Natural gas pipelines | 0.60 | 30% |
| Oil and gas production | 1.00 | 30 |
| Oil and gas exploration | 1.20 | 40 |
The risk-free rate is 10 percent, and the market risk premium is 6 percent.
- What is the firm’s weighted average beta? Round your answer to two decimal places.
- What required equity
rate of return should the firm use for average-risk projects in its natural gas pipeline division? Round your answer to one decimal place.
%
- What required equity rate of return should the firm use for average-risk projects in its oil and gas exploration division? Round your answer to one decimal place.
%
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- Assume perfect capital markets. A firm has a market value of $30, 000 and debt of $7, 500 horrowed at 7%. The return on equity is 18%. What is the return on equity if the firm was unlevered? (Hint: Think about WACC, WACCL = WACCU)arrow_forwardProfit Margin, Investment Turnover, and ROI Snodgrass Company has income from operations of $232,800, invested assets of $970,000, and sales of $3,880,000. Use the DuPont formula to compute the return on investment and show (a) the profit margin, (b) the investment turnover, and (c) the return on investment. Round your answers to one decimal place. a. Profit margin b. Investment turnover c. Return on investment %arrow_forwardAssume that a firm has sales of $11,700,000, total assets of $4,500,000 total common equity of $2,000,000 and an ROE of 37.4985 percent. Using DuPont equation, determine the profit margin for this firm.arrow_forward
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