cost of capital.., Financial Management

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your firm is considering its household products division. you identify John Lewis as a firm with comparable investments. suppose J.L. equity has a market capitalization of 150 billion euro and a beta of 0.87. J.L. also has 22billion euros of AAA rated debt outstanding, with an average yield of 2.6%. Estimate both the equity cost of capital and the total cost of capital of your firm''s investment given a risk free rate of 5% and a market risk premium of 7%.

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