When income and wealth are rising, the demand for bonds rises and the demand curve shifts to the right

In his report, Sandell would like to discuss the sensitivity of the project’s net present value to the estimation of the cost of equity. The China project’s net present value calculated using the equity beta without and with the country risk premium are, respectively

Jurgen Knudsen has been hired to provide industry expertise to Henrik Sandell, CFA, an analyst for a pension plan managing a global large-cap fund internally. Sandell is concerned about one of the fund’s larger holdings, auto parts manufacturer Kruspa AB. Kruspa currently operates in 80 countries, with the previous year’s global revenues at h5.6 billion. Recently, Kruspa’s CFO announced plans for expansion into China. Sandell worries that this expansion will change the company’s risk profile and wonders if he should recommend a sale of the position. Sandell provides Knudsen with the basic information. Kruspa’s global annual free cash flow to the firm is h500 million and earnings are h400 million. Sandell estimates that cash flow will level off at a 2 percent rate of growth. Sandell also estimates that Kruspa’s after-tax free cash flow to the firm on the China project for next three years is, respectively, h48 million, h52 million, and h54.4 million. Kruspa recently announced a dividend of h4.00 per share of stock. For the initial analysis, Sandell requests that Knudsen ignore possible currency fluctuations. He expects the Chinese plant to sell only to customers within China for the first three years. Knudsen is asked to evaluate Kruspa’s planned financing of the required h100 million with a h80 public offering of 10-year debt in Sweden and the remainder with an equity offering. Additional information: Equity risk premium, Sweden 4.82% Risk-free rate of interest, Sweden 4.25% Industry debt-to-equity ratio 0.3 Market value of Kruspa’s debt h900 million Market value of Kruspa’s equity h2.4 billion 34 Learning Outcomes, Summary Overview, and Problems part-i-03 13 January 2012; 10:18:46 Kruspa’s equity beta 1.3 Kruspa’s before-tax cost of debt 9.25% China credit A2 country risk premium 1.88% Corporate tax rate 37.5% Interest payments each year Level A. h26 million and h24 million. B. h28 million and h25 million. C. h30 million and h27 million.

In the growth stage of the product life cycle, the riskiest move by a follower is to:

A) imitate the leader by developing "me-too" products. B) leapfrog the competition. C) exit quickly and invest in some other product with long-term potential. D) fortify its position as number two or three.