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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)=0.8 and beta (rifle)=1.3.
Colt Manufacturing has two divisions: 1) pistols; and 2) rifles. Betas for the two divisions have been determined to be beta (pistol)=0.8 and beta (rifle)=1.3. The currentrisk-free rate of return is 3%, and the expected market rate of return is 8%. The after-tax cost of debt for Colt is 5.5%. The pistol division's financial proportions are 35.0% debt and 65.0% equity, and the rifle division's are 45.0% debt and 5.0% equity.
a. What is the pistol division's WACC?
b. What is the rifle division's WACC?
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