This means that the real estate division will have a cost of capital of: 12.28%

Question

This means that the real estate division will have a cost of capital of: 12.28% The consulting division is expected to have a beta of 2.1 because it will be riskier than the first real estate division. This means that the firm's consulting division will have a cost of capital of: 19.12% 17.97% 17.57% 16.62% The distribution division will have less risk than the firm's real estate division, so its beta is expected to be 0.5. This means that the distribution division's cost of capital will be: 18.57% 18.67% 17.37% 6.70% Wizard Co. expects 65% of its total value to end up in the real estate division, 25% in the consulting division, and 10% in the distribution division. 12.84% 15.69% 17.59% 14.14%

Explanation / Answer

Expected Rate of return = [12.28 x 0.65] + [16.62 x 0.25] + [6.70 x 0.10]

= 12.81%

which is close to 12.84%

Hence, the answer is 12.84%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.