Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.9, 1.3, 1.4, and 1.5, respectively. Assume all current and future projects will be financed with 35 percent debt and 65 percent equity, the current cost of equity (based on an average firm beta of 1.3 and a current risk-free rate of 4 percent) is 15 percent and the after-tax yield on the company’s bonds is 9 percent. What will the WACCs be for each division? Note: Do not round intermediate calculations. Round your final answers to 2 decimal places.

Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm currently has four divisions, A through D, with average betas for each division of 0.9, 1.3, 1.4, and 1.5, respectively. Assume all current and future projects will be financed with 35 percent debt and 65 percent equity, the current cost of equity (based on an average firm beta of 1.3 and a current risk-free rate of 4 percent) is 15 percent and the after-tax yield on the company’s bonds is 9 percent. What will the WACCs be for each division? Note: Do not round intermediate calculations. Round your final answers to 2 decimal places.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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