Rolling Stones Inc. is a manufacturer of high$-$end jewelry with currently two main divisions: Diamonds and

Coloured Stones.

The firm is planning to expand by acquisition into a third division consisting of products made of Precious

Metals.

You are financial analyst trying to determine what cost of capital to use for the Precious Metals division.

You gather the following financial data about the entire firm:

Pre$-$tax cost of debt: $8\mathrm{.}1\%$

Risk$-$free rate: $4\mathrm{.}0\%$

Expected market return: $15\mathrm{.}2\%$

Equity beta: $1\mathrm{.}0$

Tax rate: $26\%$ You collect more financial information on the divisions:

What WACC would you use for the new Precious Metals division?

$\%($Give your answer as a percentage to $2$ decimal places$)$

TRUE or FALSE: Using the WACC for the entire Rolling Stone Inc, you will underestimate the value of the

Precious Metals division.