ABC company has two subsidiaries: One making toys and another one making antivirus software. ABC officers wanted to know the estimated cost of its toy subsidiaries and discover Hubei another toy making company, nearly resembles the company. The current risk-free rate is at 3% and the market risk premium at 4%. Meanwhile, Hubei beta is 2.2 and its total market equity is RM800 million. Its has also bonds issued at RM80 million with a yield to maturity at 6%. Assuming the tax rate is 30%.

Required:

1) Find the estimated cost of capital for ABC toys, based on Hubei's cost of capital.

2) If ABC overall cost of capital, i.e. toy and antivirus software, is at 13%, find the cost of capital for the antivirus software division. Assume that the toy division represents 40% of the value of the firm