Divisional Costs of Capital A firm's cost of capital is often a reflection of its activities and funding needs. Consider the case of wizard Company, and answer the following questions: Wizard Co. currently has only a real estate division and uses only equity capital; however, it is considering creating consulting and distribution 11.12% divisions. Its beta is currently 1.3. The risk-free rate is 2.8%, and the 5.60% market-risk premium is 6.4% 6.44% 2.80% 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 2.2, because it will be 18.23% riskier than the firm's real estate division. 19.38% 17.83% This means that the firm's consulting division will have a cost of capital of: 16.88% The distribution division will have less risk than the firm's real estate division, 6.64% so its beta is expected to be 0.6 17.63% 18.83% This means that the distribution division's cost of capital will be: 18.93% Wizard Co. expects 60% of its total value to end up in the real estate division, 14.74% 25% in the consulting division, and 15% in the distribution division. 11.89% 16.64% Based on this information, what rate of return should its investors require 13.19% once it opens the new divisions