Question
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
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 2.2, because it will have more risk than the firms wholesale division. The retail division is expected to have a beta of 0.7, because it will have less risk than the firms wholesale division. The risk-free rate is 4.4%, and the market risk premium is 5.2%. Based on this information, fill in the missing cost of capital information below:
Wholesale division:
Marketing division:
Retail division:
If 55% of Newtown Propanes total value ends up in the wholesale division, 20% in the marketing division, and 25% in the retail division, then its investors should require a return of .
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