Your corporate division had the following net cash flows:

Year: 1999 2000 2001 2002 S&P 500 +21.4% −5.7% −12.8% −21.9%

Cash Flows +$2,000 $0 $0 $0 Year: 2003 2004 2005 S&P 500 +26.4% +9.0% +3.0%

Cash Flows +$2,500 +$1,000 +$500 Assume that the risk-free rate is 1% per annum and the equity premium is 3%. Use the certainty equivalence concept to answer the following questions:

What should be a reasonable value approximation for this corporate division?
What should be the cost of capital for this corporate division?