You are working for Microsoft evaluating the possibility of selling energy drinks. Microsoft’s WACC is 8.3%.

Energy drinks would be a new line of business for Microsoft, however, so the systematic risk of this business would likely differ from the systematic risk of Microsoft’s current business. As a result, the assets of this new business should have a different cost of capital. You need to find the cost of capital for the energy drink business. Assuming that the risk-free rate is 3% and the market risk premium is 6%, how would you estimate the cost of capital for this type of investment?