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Amazonas has three operating divisions: AZ capital (40%), AZ Technology (30%) and AZ Energy (30%). The CFO wants to estimate the cost of capital for
Amazonas has three operating divisions: AZ capital (40%), AZ Technology (30%) and AZ Energy (30%). The CFO wants to estimate the cost of capital for each division, to help with capital budgeting. Amazonas is financed 50% by dept, with D = 0.15. The current risk-free interest rate is 5% and the expected marked return is 10%. The following three competitors have investments similar to those of Amazonas three divisions (with debt practically risk-free):
Company | Equity Beta | E / (D + E) |
A in capital | 0.6 | 0.7 |
B in Technology | 1.5 | 0.8 |
C in Energy | 1.4 | 0.6 |
Q1: What is the cost of capital for each division? Q2: What is Amazonas equity beta?
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