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 2.8%, and the market-risk premium is 5.8%. 0 2.80% 5.60% 10.34% 6.44% This means that the firm's real estate division will have a cost of capital of: The consulting division is expected to have a beta of 1.8, because it will be riskier than the firm's real estate division. 14.19% 14.59% 15.74% 13.24% ? This means that the firm's consulting division will have a cost of capital of: The distribution division will have less risk than the firm's real estate division, so its beta is expected to be 0.5. 5.70% 13.99% 15.19% 15.29% ? This means that the distribution division's cost of capital will be: Wizard Co. expects 70% of its total value to end up in the real estate division, 20% in the consulting division, and 10% in the distribution division. 15.21% ? 13.31% 11.76% O 10.46% Based on this information, what rate of return should its investors require once it opens the new divisions? | |