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09: Assignment - The Cost of Capital A firm's cost of capital is often a reflection of its activities and funding needs. Consider the case
09: Assignment - The Cost of Capital A firm's cost of capital is often a reflection of its activities and funding needs. Consider the case of Wizard Company, and answer the following questions: Wizard Co, currently has only a real estate division and uses only equity capital; however, it is considering creating consulting and distribution divisions. Its beta is currently 1.3. The risk-free rate is 4.4%, and the market risk premium is 6.2%. This means that the firm's real estate division will have a cost of capital of: 10.12% 12.46% 3.08% 8.80% The consulting division is expected to have a beta of 2.1, because it will be riskier than the firm's real estate division This means that the firm's consulting division will have a cost of capital of: 19.92% 18.77% 17.42% 18.37%
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