3. Novus Nyet Company has two divisions: Health Foods and Specialty Metals.

Each of these divisions employs debt equal to 30 percent of its total requirements, with equity capital used for the balance. The current borrowing rate is 8 percent, and the company's tax rate is 40 percent. Novus Nyet wishes to establish a minimum return standard for each division based on the risk of that division. This standard then would serve as the transfer price of capital to the division.