Considering creating marketing and retail divisons

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Reference no: EM131359110

Newtown Propane currently has only a wholesale divison and uses only equity capital; however, it is considering creating marketing and retail divisons. Its beta is currently 1.5. The marketing division is expected to have a beta of 1.8, because it will have more risk than the firm's wholesale division. The retail division is expected to have a beta of 0.7, because it will have less risk than the firm's wholesale division. The risk-free rate is 4.2%, and the market-risk premium is 6.2%. Based on this information, fill in the missing information in the following:

Cost of Captial:

Wholesale divison: a. 13.50% b. 4.20% c. 8.40% d. 10.50%

Marketing Divison: a. 16.31% b. 15.36% c. 16.71% d. 17.86%

Retail Divison: a. 17.41% b. 16.11% c. 8.54% d. 17.31%

If 60% of Newtown Propane's total value ends up in teh wholesale division, 25% in the marketing division, and 15% in the retaill division, then its investors should require a return of

a. 13.25%

b.16.10%

c.18.00%

d.14.55%

Reference no: EM131359110

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