ABC, Inc., has three divisions: A, B, and C. Division A has the lowest risk and Division C has the highest risk. ABC has an after-tax cost of debt of 4.6% and a cost of equity of 9.5%. The company is financed with 50% debt and 50% equity. Management has told the division manager of division A that projects in that division are assigned a discount rate that is 1% less than the firm's weighted average cost of capital. What is the discount rate applicable to Division A?

Answer rating: 100% (QA)

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