You are working for Microsoft evaluating the possibility of selling energy drinks. Microsofts WACC is 8.3%. Energy

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You are working for Microsoft evaluating the possibility of selling energy drinks. Microsoft’s WACC is 8.3%.

Energy drinks would be a new line of business for Microsoft, however, so the systematic risk of this business would likely differ from the systematic risk of Microsoft’s current business. As a result, the assets of this new business should have a different cost of capital. You need to find the cost of capital for the energy drink business. Assuming that the risk-free rate is 3% and the market risk premium is 6%, how would you estimate the cost of capital for this type of investment?

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Fundamentals Of Corporate Finance

ISBN: 9781292437156

5th Global Edition

Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford

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