3.

Amalgamated Products has two operating divisions, foods and electronics.

The firm has $20M of risk free debt outstanding.

The market value of its equity is $30M.

The risk free rate is 4% and the market risk premium is 8%.

There are no corporate taxes.

The equity beta is 2.9

.

The electronics division is financed for half by debt of its total value

.

The food division is financed 100% by equity

.

a)Calculate the expected return on equity for Amalgamated

.

b)Evaluate the cost of capital for each one of Amalgamated divisions (Electronics and Food)

c)Evaluate the cost of capital for Amalgamated

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