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Newcastle has used a single firm-wide cost of capital to evaluate new investments. estimates for each of the two divisions. The requisite information needed to
Newcastle has used a single firm-wide cost of capital to evaluate new investments. estimates for each of the two divisions. The requisite information needed to accomplish your task follows: - The cost of debt financing is 9 percent before a marginal tax rate of 25 percent. You may assume this cost of debt is after any flotation costs the firm might incur. - The risk-free rate of interest on long-term U.S. Treasury bonds is currently 5.8 percent, and the market-risk premium has averaged 4.1 percent over the past several years. - Both divisions adhere to target debt ratios of 50 percent. - The firm has sufficient internally generated funds such that no new stock will have to be sold to raise equity financing. a. Estimate the divisional costs of capital for the manufacturing and distribution divisions. a. What is the divisional cost of capital for the manufacturing division? \% (Round to two decimal places.)
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