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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...

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Finance

Suppose your firm has decided to use a divisional WACC approachto analyze projects. The firm currently has four divisions, Athrough D, with average betas for each division of 0.5, 1.0, 1.2,and 1.5, respectively. Assume all current and future projects willbe financed with 60 debt and 40 equity, the current cost of equity(based on an average firm beta of 1.0 and a current risk-free rateof 3 percent) is 15 percent and the after-tax yield on thecompany’s bonds is 9 percent. What will the WACCs be for eachdivision?

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Suppose your firm has decided to use a divisional WACC approachto analyze projects. The firm currently has four divisions, Athrough D, with average betas for each division of 0.5, 1.0, 1.2,and 1.5, respectively. Assume all current and future projects willbe financed with 60 debt and 40 equity, the current cost of equity(based on an average firm beta of 1.0 and a current risk-free rateof 3 percent) is 15 percent and the after-tax yield on thecompany’s bonds is 9 percent. What will the WACCs be for eachdivision?

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