Amazonas has three operating divisions: AZ capital (40% ), AZ Technology (30%) and AZ Energy (30%)....

 

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Amazonas has three operating divisions: AZ capital (40% ), AZ Technology (30%) and AZ Energy (30%). The CFO wants to estimate the cost of capital for each division, to help with capital budgeting. Amazonas is financed 50% by debt, with 3D = .15. The current risk-free interest rate is 5% and the expected market return is 10%. The following three competitors have investments similar to those of Amazonas three divisions (with debt practically risk-free): Company E/(D+E) Equity Beta .6 .7 1.5 .8 1.4 .6 A in capital B in Technology C in Energy (a) What is the cost of capital for each division? (b) What is Amazonas equity beta? Amazonas has three operating divisions: AZ capital (40% ), AZ Technology (30%) and AZ Energy (30%). The CFO wants to estimate the cost of capital for each division, to help with capital budgeting. Amazonas is financed 50% by debt, with 3D = .15. The current risk-free interest rate is 5% and the expected market return is 10%. The following three competitors have investments similar to those of Amazonas three divisions (with debt practically risk-free): Company E/(D+E) Equity Beta .6 .7 1.5 .8 1.4 .6 A in capital B in Technology C in Energy (a) What is the cost of capital for each division? (b) What is Amazonas equity beta? Amazonas has three operating divisions: AZ capital (40% ), AZ Technology (30%) and AZ Energy (30%). The CFO wants to estimate the cost of capital for each division, to help with capital budgeting. Amazonas is financed 50% by debt, with 3D = .15. The current risk-free interest rate is 5% and the expected market return is 10%. The following three competitors have investments similar to those of Amazonas three divisions (with debt practically risk-free): Company E/(D+E) Equity Beta .6 .7 1.5 .8 1.4 .6 A in capital B in Technology C in Energy (a) What is the cost of capital for each division? (b) What is Amazonas equity beta?

Answer rating: 100% (QA)

a What is the cost of capital for each division To calculate the cost of capital for each division w... View the full answer