Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ASSIgen Ume LULUI Capital Wizard Co. currently has only a real estate division and uses only equity capital; however, it is considering creating consulting and

image text in transcribed
ASSIgen Ume LULUI Capital 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 4.2%, and the market-risk premium is 5.2%. 9.66% 10.96% 04.20% O 8.40% 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 1.9, because it will be riskler than the firm's real estate division. O 15.43% 16.58% O 15.03% 14.08% 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 0.6. 14.83% 7.32% 16.03% 16.139 This means that the distribution division's cost of capital will be: Wizard Co. expects 75% of its total value to end up in the real estate division, 10% in the consulting division, and 15% in the distribution division O 10.75% 13.60% 15.50% 12.05% Based on this information, what rate of return should its investors require once it opens the new divisions? O O

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Derivatives Markets

Authors: Robert L. McDonald

2nd Edition

032128030X, 978-0321280305

More Books

Students also viewed these Finance questions

Question

1.What is the difference between VaR and ES?

Answered: 1 week ago