FIN 3950 Exam 4 2018 Summer 2 Junel Unless otherwise instruc

FIN 3950 Exam 4 2018 Summer 2 (Junel Unless otherwise instructed, use two (2) decimal places for both s and dollar amounts. This is enforced when entering units, use % for percentages, $ for dollar amounts, and years farve ars. Question 25 (4 points) Dandy Product\'s overall weighted average required rate of return is 11.00 percent. Its yogurt division is riskier than the firm as a whole, its fresh produce division has the same risk as the firm, and its institutional foods division has less risk than the firm. Dandy adjusts for both divisional and project risk by adding or subtracting 1.50 percentage pointisl. What is the risk- adjusted required rate of return for an average-risk project in the institutional foods division? Your Answer Answer units Save Previous Page Page 26 of 2 Save All Responses Go to Submit Qui DOLL

Solution

High risk institutional food rate of return = 11% -1.5% +1.5% = 11%
Low risk institutional food rate of return = 11% -1.5% -1.5% = 8%
Institutional food average risk is less than average required rate of return of Dandy= =(8%+11%)/2 = 11% -1.5% = 9.5%

Best of Luck. God Bless

Yoghurt	12.5
Fresh food	11
Institutional food division	9.5