Star Appliance Company Essay Example for Free

principal sum gubbins Company EssayThe methods that could be employ to decide the hail of capital of paladin public lavatory Company would be to calculate the cost of equity of the company and then using that in finding another brush aside (hurdle) rate. Being that the authenticly used discount rate of 10 percent has been used since the companys first years before the depression it should be recalculated in order to sleep together a more appropriate discount rate in the time of the decision of for the dishwasher, trash compacter, or the food disposal. After increasing the discount rate to a more appropriate percent for the current time, you would then want to reevaluate the net present value of the three proposed investings in order to determine which of the three should be chosen. Now that these values have been recalculated with the newer discount rate, it can be determined that twain the dishwasher and the trash compactor would be the best investment decisions fo r Star Appliance Company.This is because at the higher(prenominal) discount rate, these both still have positive net present values along with a higher internal rate of return than the new discount rate. These would prove best for the companys investments where as the food disposal would be more costly to the firm. In the second half of the Star Appliance case (B), the given strategies would be in calculating dividend discount model, earnings/price model, and CAPM.Each of these models come about calculating things that are similar but divers(prenominal) characteristics of the company can be represented by each different calculation. The current cost of capital that I calculated came to 11. 58%. The investment opportunities are now different than previous years for Star because now they are opening the prognosis for debt financing where as before they were 100 percent equity financed.It is because of this that they must calculate there newer cost of capital as compared to the orig inal of 10 percent. Also, the investments made in the stock market are different than that of the company because the different betas used will result in different calculations for the stock market and for the company, as well as the various amount of different internal investing opportunities that Star could decide to do would also make for different investments.After going over the different circumstances the projects that Star should omit would be the new grain dryer product. Although this project has more risk, the return on the project would be much greater than that of the refrigerator. This is also due to the different cost of capital from the years previous for Star as the more current at the time of the case. With newer investments in long-term debt, it amounts in different cost of capitals to the previous 0 debt 100 percent equity investments.