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Question 9: ECRI Corporation is a holding company with four main subsidiaries. The percentage of its capital invested in each of the subsidiaries (and their
Question 9: ECRI Corporation is a holding company with four main subsidiaries. The percentage of its capital invested in each of the subsidiaries (and their respective betas) are as follows: Subsidiary Electric Company Cable Company Real Estate Development International Projects Percentage of Capital 60% 25% 10% Beta 0.70 0.90 1.30 1.50 a. What is the holding company's beta? b. If the risk-free rate is 4% and the market risk premium is 5%, what is the holding company's required rate of return? ECRI is considering a change in its strategic focus; it will reduce its reliance on the electric subsidiary, so the percentage of its capital in this subsidiary will be reduced to 50%. At the same time, it will increase its reliance on the international projects so the percentage of its capital in this subsidiary will rise to 15%. What will the companys required rate ofreturn be after these changes? c. If a company's beta double, would its required rate of return also double
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