3. Amalgamated Products has two operating divisions, foods and electronics. The firm has $20M of risk free
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Question:
3.
Amalgamated Products has two operating divisions, foods and electronics.
The firm has $20M of risk free debt outstanding.
The market value of its equity is $30M.
The risk free rate is 4% and the market risk premium is 8%.
There are no corporate taxes.
The equity beta is 2.9
.
The electronics division is financed for half by debt of its total value
.
The food division is financed 100% by equity
.
a)Calculate the expected return on equity for Amalgamated
.
b)Evaluate the cost of capital for each one of Amalgamated divisions (Electronics and Food)
c)Evaluate the cost of capital for Amalgamated
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