A firm is interested in establishing a new division, which will focus primarily on developing new internet-based projects. In trying to determine the cost of capital for this new division, you discover that stand-alone firms involved in similar projects have on average the following characteristics;Their capital structure is 10 percent debt and 90 percent common equity.;Their cost of debt is typically 12 percent.;The beta is 1.7.;Given this information, what would your estimate be for the division's cost of capital?
This post calculates the division's cost of capital.
This question was answered on: Dec 18, 2020
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Dec 18, 2020EXPERT
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