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Colt Manufacturing has two? divisions: 1) pistols; and 2) rifles. Betas for the two divisions have been determined to be beta (pistol) equals=0.8 and beta (rifle) equals=1.0
The current risk-free rate of return is 2.5 % and the expected market rate of return is 8.5 %.The after-tax cost of debt for Colt is 7.5?%.
The pistol division's financial proportions are 50.0 % debt and 50.0 % equity, and the rifle division's are 60.0 % debt and 40.0 % equity.
a. What is the pistol division's WACC?
b. What is the rifle division's WACC?
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