Composite WACC for Northern Conglomerate
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Northern Conglomerate has two divisions, Division A and Division B. Northern looks at competing pure-play firms to estimate the betas of each of the two divisions. After this analysis, Northern concludes that Division A has a beta of 0.8 and Division B has a beta of 1.5. The two divisions are the same size. The risk-free rate is 5 percent and the market risk premium, kM - kRF, is 6 percent. Assume that Northern is 100 percent equity financed. What is the overall composite WACC for Northern Conglomerate?
a. 9.8%
b. 10.2%
c. 11.9%
d. 13.6%
e. 14.0%
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The expert examines the composite WACC for Northern Conglomerates.
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Northern Conglomerate has two divisions, Division A and Division B. Northern looks at competing pure-play firms to estimate the betas of each of the two divisions. After this analysis, Northern concludes that Division A has a beta of 0.8 and Division B has a beta of 1.5. The two divisions are the ...
Purchase this Solution
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