10. Adjusting the cost of capital for risk Divisional Costs 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 1.5. The risk-free rate is 4.8%, and the market risk premium is 5.8%. This means that the firm's real estate division will have a cost of capital of: 9.60% 12.00% 13.50% 2.40% The consulting division is expected to have a beta of 1.8 , because it will be riskier than the firm's real estate division. 16.59%15.24%16.19%17.74% The distribution division will have less risk than the firm's real estate division, so its beta is expected to be 0.6 . This means that the distribition division's cost of capital will be: 17.29% 15.99% 8.28% 17.19% Wizard Co. expects 65% of its total value to end up in the real estate division, 25% in the consulting division, and 10% in the distribution division. Based on this information, what rate of return should its investors require once it opens the new divisions? (Note: Round your intermediate calculations to two decimal places.) 16.29% 13.44% 14.74% 18.19%