Divisional Costs of CapitalNewtown Propane currently has only a wholesale division and uses only equity capital; however, it is consideringcreating marketing and retail divisions. Its beta is currently 1.4. The marketing division is expected to have a beta of1.8, because it will have more risk than the firm's wholesale division. The retail division is expected to have a beta of0.8, because it will have less risk than the firm's wholesale division. The risk-free rate is 3.6%, and the market-riskpremium is 5.2%. Based on this information, fill in the missing information in the following below:Cost of CapitalWholesale divisionMarketing divisionRetail divisionIf 55% of Newtown Propane's total value ends up in the wholesale division, 20% in the marketing division, and 25%in the retail division, then its investors should require a return of

Calculate the cost of capital for wholesale division as follows:

Answered: Divisional Costs of Capital Newtown…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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XYZ Corporation: The data shown in the above table are for two mutually exclusive security projects that a company, called XYZ, is considering. Both projects are assumed to be strategically important to the company. Assume further the company’s cost of capital is 10%. year project A Project B 0 -200 -150 1 200 50 2 800 100 3 -800 150 Calculate the NPV of both projects. Calculate the Profitability Index for both projects. Calculate the IRR for both projects Which security project should XYZ invest in?

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