Randolph Corporation Essay

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Contents I. Executive Summary 2 II. Analysis 2 1. Question 1 2 2. Question 2 3 3. Question 3 3 4. Question 4 4 5. Question 5 5 6. Question 6 5 7. Question 7 7 8. Question 8 7 9. Question 9 8 III. Conclusion 9 I. Executive Summary The Randolph Corporation is a multidivisional producer of electric sanders, sandpaper, industrial grinders and sharpeners, and coated ceramics. The company also has a division which is active in real estate development. The company was divided into 4 separate divisions base on the characteristics of diversify product line, namely Home Products Division, Equipment Manufacturing Division, Ceramic Coatings Division, and Residential Real Estate Division. The debate surrounding Randolph Corporation was risen when the frictions have developed among divisions and Randolph’s stock has not performed as well as that of others in the industry that require BOD evaluate this solution. The company’s main problem is believed to lie in the financial planning processes and in the risk consideration. To tackle these problems, Barbara Kravitz, suggests a target capital structure of 45% debt in every divisions and classify projects into one of three groups: high risk, average risk, and low risk that can be based on to calculate the equivalent divisional rate. This report below will continue to examine about a comprehensive analysis of capital budgeting process, the need for differential risk adjustments and how they impact firm. We strongly believe that these changes would be taken to improve the performance of the Randolph Corporation. II. Analysis 1. Estimate the divisional hurdle rates for each division. Assume that all divisions use a 45 percent debt ratio for this purpose. Answer To estimate the hurdle rates for every division of the Randolph Corporation that weighted average cost of capital (WACC) have to be

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