Conglomerate Company has a cost of capital, based on the CAPM, of 17%. The risk-free rate is 4% and the market risk premium is 10%. The firm has 3 divisions:
|
Weight
|
Division
|
Division Beta
|
|
1/3
|
Automotive Retailer
|
2.0
|
|
1/3
|
Computer Manufacturer
|
1.3
|
|
1/3
|
Electric Development
|
0.6
|
Find the correct cost of capital for evaluating a new generation of electrical equipment. Explain.