Company ABC is an international conglomerate. It is looking to establish a subsidiary selling unproven homeopathic remedies, having identified a current demand in the market. But, ABC needs to find the cost of equity for the subsidiary. ABC decides that Blackmores is a good comparable firm. After doing some research, ABC finds that blackmore's beta is approximately 0.28. Blackmore's debt/equity ratio is approximately 0.8. But, you believe the subsidiary can only support a debt/equity ratio of 0.4. Suppose that the corporate tax rate for blackmores is 30%, but you think it would only be 20% for the subsidiary due to its low income. The anticipated risk free rate is 2.5% and the anticipated market risk premium is 5.5%. What is the subsidiary's cost of equity? O a. 3.80% O b. 4.04% O c. 3.76% O d. 4.37% O e. 4.12%

Company \\( A B C \\) is an international conglomerate. It is looking to establish a subsidiary selling unproven homeopathic remedies, having identified a current demand in the market. But, ABC needs to find the cost of equity for the subsidiary. \\( A B C \\) decides that Blackmores is a good comparable firm. After doing some research, \\( A B C \\) finds that blackmore's beta is approximately 0.28 . Blackmore's debt/equity ratio is approximately 0.8 . But, you believe the subsidiary can only support a debt/equity ratio of 0.4 . Suppose that the corporate tax rate for blackmores is \30, but you think it would only be \20 for the subsidiary due to its low income. The anticipated risk free rate is \2.5 and the anticipated market risk premium is \5.5. What is the subsidiary's cost of equity? a. \3.80 b. \4.04 c. \3.76 d. \4.37 e. \4.12