Homework/finance

• Question: 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 3 percentage points and project risk by adding or subtracting 3 percentageDandy 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 3 percentage points and project risk by adding or subtracting 3 percentage points. Thus, the maximum adjustment is 3 + 3 percentage points. What is the risk adjusted required rate of return for a low-risk project in the yogurt division?

Answer

risk adjusted required rate of return for a low-risk project = overall weighted average required rate of return +3-3

=12+3-3 = 12% 

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