The analysis of a two-division company (DV2) has indicated that the beta of the entire company is 1.37. 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 1.87 while for MLS the beta of a comparable pure-play company is only 0.72. The risk-free rate is 3.5 percent and the market risk premium is 5.8 percent. Assume all cash flows are perpetuities and the tax rate is zero.

1 Calculate the cost of capital of the entire company.(Round answers to 2 decimal places, e.g. 25.25%.)

2The 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?

Yes

No