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| Teaching Since: | May 2017 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
16. Feasibility of a Divestiture. Merton, Inc., has a sub- sidiary in Bulgaria that it fully finances with its own equity. Last week, a firm offered to buy the subsid- iary from Merton for $60 million in cash, and the offer is still available this week as well. The annu- alized long-term risk-free rate in the United States increased from 7 to 8 percent this week. The ex- pected monthly cash flows to be generated by the subsidiary have not changed since last week. The risk premium that Merton applies to its projects in Bulgaria was reduced from 11.3 to 10.9 percent this week. The annualized long-term risk-free rate in Bulgaria declined from 23 to 21 percent this week. Would the NPV to Merton, Inc., from divesting this unit be more or less than the NPV determined last week? Why? (No analysis is necessary, but make sure that your explanation is very clear.)
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