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Colt Manufacturing has two divisions: 1) pistols, and 2) rifles. Betas for the two divisions have been determined to be beta (pistol) = 0.6 and
Colt Manufacturing has two divisions: 1) pistols, and 2) rifles. Betas for the two divisions have been determined to be beta (pistol) = 0.6 and beta (rifle) = 1.1. The current risk-free rate of return is 2%, and the expected market rate of return is 8%. The after-tax cost of debt for Colt is 7%. The pistol division's financial proportions are 45.0% debt and 55.0% equity, and the rifle division's are 55.0% debt and 45.0% equity. a. What is the pistol division's WACC? b. What is the rifle division's WACC? a. What is the pistol division's WACC? 26.95% (Round to two decimal places.) b. What is the rifle division's WACC? 3.87% (Round to two decimal places.)
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