Calculator View Instructions Help Center Question No: 06 04 05 X company is into three different lines of business Cement, Power, Sugar business. X Co. (with all its' segments) is all equity financed. [10] X Co. is listed on the stock exchange and you have historical data for adjusted closing prices of X Co. The regression between stock returns and market returns showed the statistically significant coefficient of market returns as 2. Explain what does this beta mean? The market returns were 8% and risk free rate was 4%. Calculate the cost of equity capital for X company. The company wanted to expand its' Sugar business. Can they use the same cost of equity calculated before for X company to value this capital budgeting project (expansion in Sugar business)? Why or why not explain with a graph of security market line? They (X Co.) had calculated the beta of cement industry and power industry using comparable company approach. However, they were unable to find comparable cos. in Sugar industry. However, they knew the segments (Cement, Power and Sugar industry) asset size. The Table below gives the total assets and beta of the cement industry power industry. You have to calculate the beta of sugar business for X Co. (Use property of beta for the same). Segments of X CO Cement Power Sugar Total Assets (in crore Rs.) 100 50 150 Beta of equity 15 0.25 Unknown