Question: Answer is NOT 7.4. Please provide the correct answer, thank you! Question 8 0/3 points A company is going to open a new division. The

Answer is NOT 7.4. Please provide the correct answer, thank you!

Question 8 0/3 points A company is going to open a new division. The division will be financed with $1 million in debt and $3 million in equity. The tax rate is 15% for all firms. The risk-free rate is 1% and market portfolio return is 7%. The yield on the division's debt is 4%. The information on the relevant pure play companies is given below Pure Play Firm Beta Debt Equity 1.5 0.8 0.2 0.6 B What is the cost of equity of the new division? Answer: 7.4

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