Wrentham Inc. has two divisions of equal size. Division A has a beta of 0.93, while Division
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Wrentham Inc. has two divisions of equal size. Division A has a beta of 0.93, while Division B has a beta of 1.57. Wrentham has no debt, and is completely equity-financed. The real risk-free rate is 6.5 percent, and the market risk premium is 5.3 percent. The cost of capital for Wrentham is 16 percent. The projects in division A are discounted at A’s required return, and division B’s projects are discounted at B’s required return. Which of the two divisions has a lower cost of capital than the overall cost of capital for the firm?
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Division A Using the CAPM the cost of equity is R E 065 093053 ...View the full answer
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Related Book For 
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
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