Question 3 - Betas (20 points) You are employed in the car industry. You are trying to calculate the cost of capital for a new project in the airline manufacturing sector. Assume there are no taxes and no costs of financial distress. You have the following information: (0) CarFirst operates exclusively in the car sector. It has a constant debt-to-equity ratio of 1, and a debt beta of 0.2. CarFirst's expected return on equity is 20%. (ii) CarAir Combined has two divisions of equal size: one division is in the airline manufacturing sector and the other division is in the car sector. It has risk-free debt, and a constant debt-to-equity ratio of 0.5. The expected return on equity is 20%. The risk-free rate is 5% and the market risk premium is 7%. (a) What is the asset beta of CarFirst? (b) What is the asset beta of CarAirCombined? (c) What is the cost of capital for the new project