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Cost of equity

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My company is a multi-divisional company. I have four divisions with the following betas and proportion of the company's total assets:

Division Beta % of Assets
Electric & Gas 0.85 60
Bus transportation 0.95 10
Real estate 1.40 25
Recreation 1.15 5

The risk-free rate is 8 percent and the market risk premium is 5 percent. If my company is considering a residential development, what should my company use as its cost of equity in evaluating this project?

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Solution Summary

The solution explains how to determine the cost of equity to be used in evaluating a project. A company's total assets for betas and proportions are determined.

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The cost of equity should reflect the risks associated with the project. Since the company ...

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