l. Harry Davis is interested in establishing a new division that will focus primarily on developing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, on average, the following characteristics: (1) their capital structure is 10% debt and 90%

common equity; (2) their cost of debt is typically 12%; and (3) they have a beta of 1.7.

Given this information, what would your estimate be for the new division’s cost of capital?