Supercircuits Is a Decentralized Company and Has a Required Opportunity

question 44

Short Answer

Supercircuits is a decentralized company and has a required opportunity cost of capital of 15%. The home computer division, whose current ROI is 10%, is considering an investment which will earn a 13% return. The gaming division, whose current ROI is 20%, is considering an investment which will earn a 17% return. If the objective is to maximize residual income, each division will make the following choice:

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Definitions:

Collection Float

The time period between when a check is deposited into a bank account and when the amount is available to the account holder, reflecting the bank's processing time.

Marketable Securities

Financial instruments that can easily be converted to cash quickly at a reasonable price.

Miller-Orr Model

A financial model used to manage cash flow and determine the optimal level of cash reserves for a firm.

Trading Costs

Expenses associated with buying and selling securities, including commissions, spreads, and slippage.