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First one Star Appliance Company (A) 1

Economics

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First one

Star Appliance Company (A) 1.By what methods could Mr. Foster determine the cost of capital for Star?2.On what assumptions does each of these methods depend?3.Which methods are appropriate for Mr. foster to use at Star?4.Star management has been using a hurdle rate of 10 percent. Is this the appropriate rate to continue to use in evaluating investments at Star? Why?5.Is Star's current cost of capital the appropriate hurdle rate for evaluating new investments? Why?6.What should Star Management do with regard to the three proposed investments?Star Appliance Company (B) 1.Estimate the cost of equity for Star using the dividend discount model, the earnings/price model, and the CAPM. Do the models estimate the same things in different ways, or do they estimate different things?2.What is Star's cost of capital under its current and proposed capital structures?3.Can the method by which stock analysts currently evaluate Star's stock be used for evaluating internal investment opportunities? If so, do any adaptations have to be made? If not, why are investments in the stock market different from internal investment opportunities?4.Which projects should Star accept?5.What difference did you find between Star’s cost of capital in 1976 and in 1984? To what do you attribute the difference?

Second one

The Jacobs Division 1.If you were Mr. Soderberg, would you recommend that Mr. Reynolds accept the Silicone-X project? If not, why not? 2.How should the effect of competition be taken into account in the decision between the labor- and capital-intensive plants? 3.How should management evaluate the pricing decision and its effect on the Silicone-X capacity investment?4.From MacFadden management's (the shareholders') point of view, how do you like Mr. Reynolds's method of analyzing investments at the Jacobs Division?