Question: Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firms total assets: The risk-free rate is

Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm€™s total assets:

The risk-free rate is 7 percent and the market risk premium is 8 percent.
a. What is the firm€™s weighted average beta?
b. What required equity rate of return should the firm use for average-risk projects in its natural gas pipeline division?
c. What required equity rate of return should the firm use for average-risk projects in its oil and gas explorationdivision?

Division Natural gas pipelines Oil and gas production Oil and gas exploration Beta 0.70 1.20 1.50 Proportion of Assets 50% 30 20

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