Dandy Product's overall weighted average required rate of return is 12 percent. Its yogurt division is...
Dandy Product's overall weighted average required rate of return is 12 percent. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below-average risk. Dandy adjusts for divisional by adding or subtracting 2 percentage points and project risk by adding or subtracting 4 percentage points. Thus, the maximum adjustment is 2 + 4 percentage points. What is the risk adjusted required rate of return for a low-risk project in the yogurt division?
Homework Answers
The risk-adjusted return for a low-risk project would be 12% - 4% = 8%, which is in yoghurt division, thus risk-adjusted return is 8% + 2% = 10%
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Dandy Product's overall weighted average required rate of return
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