part b as well

(Divisianal costs of capital and investment decisions) in May of this yoar, Newcaste Mfg. Comparyss capital investment review committee received two major inveatment proposab. One of the proposals was put forth by the firm's domestic manufacturing divition, and the other came from the firm's distrifution company Both proposals promise a retum on invested capial to approximelely 13 percent, in the past, Newcaste has used a single firm-wide cost of capital to evaluate new investments. However, managers have long recognized that the manufacturing divislon is significantly more risky than tho diatribulion divition, In fact, comparable firms in the manufacturing division hawe equity betas of about 1.7, whereas diatribution companies typically have equity betas of only 1,1 . Given the size of the two proposals, Nowcastle's management foels it can undertake only one. wo it wamts to be wure that it is taking on the more promising investment. Given the importance of gotting the cost of capial estimate as close to correct as possble, the frm's chief financial officer has acked you to prepare cost of capital estimates for each of the two divisions. The recuiaite information needed to accomplish your task follows: - The cost of debt finaneing is 9 percent before a marginal tax rate of 24 percent. You may assume this cost of debt is aftor any fiotabion costs the frm might incur - The riak-free rate of interest on long-term U.S. Treasury bonds is currenfy 5.9 percent, and the market-riak premium has averaged 39 percent over the past several years. - Both divisions adhere to target debt ratiosidt 70 percent. - The firm has suffient interrally generated funds such that no new stock wal have to be sold to raise equity finanding a. Estimale the ovisional couts of capial for the manulacturing and diatribution divisions. b. Which of the two projects should the frm undertake (assuming it cannot do both due to labor and other nonfinancial retraints)? Discuss