Verano Inc. has two business divisions

a software product line and a waste water clean-up product line. The software business has a cost of equity capital of

11%

and the waste water clean-up business has a cost of equity capital of

4%.

Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another company in the waste water business using equity financing. What is the appropriate cost of capital to evaluate the business?

A.

7%

B.

7.5%

C.

11%

D.

4%