Question 10 (10 points) Nordstrom is spinning off its casual clothing segment and you are trying to determine the value of the spun off entity. Because the spin-off is not publicly traded yet, you do not have an accurate assessment of the division's equity beta. However, you do have beta data for Gap, Inc., a firm it closely resembles. Gap has an equity beta of 14, a debt beta of 0, and a debt-equity ratio of 0.5. Nordstrom has a beta of 2.0, a debt-cquity ratio of 15 (the spun-off firm will maintain this leverage ratio) and has been told by its investment bankers that the debt cost of capital will be 5%. The corporate tax rate is 30%, the risk-free rate is 6%, and the historical market risk premium is 6%. Estimate the division's weighted average cost of capital