Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets:   Division Beta Proportion of Assets Natural gas pipelines 0.60 30% Oil and gas production 1.00 30 Oil and gas exploration 1.20 40   The risk-free rate is 10 percent, and the market risk premium is 6 percent.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets:

 

Division Beta Proportion of Assets
Natural gas pipelines 0.60 30%
Oil and gas production 1.00 30
Oil and gas exploration 1.20 40

 

The risk-free rate is 10 percent, and the market risk premium is 6 percent.

    1. What is the firm’s weighted average beta? Round your answer to two decimal places.

 

    1. What required equity rate of return should the firm use for average-risk projects in its natural gas pipeline division? Round your answer to one decimal place.
        %

 

  1. What required equity rate of return should the firm use for average-risk projects in its oil and gas exploration division? Round your answer to one decimal place.

  2.   %
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