The analysis of a two$-$division company $($DV$2)$ has indicated that the beta of the entire company is

The company is $100-$percent equity funded. The company has two divisions: Major League TV

$($MLTV$)$ and Minor League Shipping $($MLS$),$ which have very different risk characteristics. The

beta of a pure$-$play company comparable to MLTV is $2\mathrm{.}50$ while for MLS the beta of a comparable

pure$-$play company is only $0\mathrm{.}72.$ The risk$-$free rate is $3\mathrm{.}5$ percent and the market risk premium is

$7$ percent. Assume all cash flows are perpetuities and the tax rate is zero.

$($Please only answer question B$.$ a$)$

Your answer is correct.

Calculate the cost of capital of the entire company. $($Round answers to $2$ decimal places, e$.$g$.$

$25\mathrm{.}25\%)$

Cost of capital

$\%17\mathrm{.}5($b$)$

The company is evaluating a project that has the same type of risk as MLS$.$ The project

requires an initial investment of $$10,000$ and pays $$1,020$ per year forever. Should the

company undertake this project?

The company should$/$should not

undertake the project.