Question
Divisional Costs of Capital Newtown Propane currently has only a wholesale division and uses only equity capital; however, it is considering creating marketing and retail
Divisional Costs of Capital
Newtown Propane currently has only a wholesale division and uses only equity capital; however, it is considering creating marketing and retail divisions. Its beta is currently 1.3. The marketing division is expected to have a beta of 2.0, because it will have more risk than the firms wholesale division. The retail division is expected to have a beta of 0.8, because it will have less risk than the firms wholesale division. The risk-free rate is 4.2%, and the market risk premium is 6.7%. Based on this information, fill in the missing cost of capital information below:
Wholesale division 8.40%
Marketing division
Retail division
If 75% of Newtown Propanes total value ends up in the wholesale division, 10% in the marketing division, and 15% in the retail division, then its investors should require a return of .
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