termountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets: Division Beta Proportion of Assets Natural gas pipelines 0.60 40% Oil and gas production 0.90 30 Oil and gas exploration 1.30 30 The risk-free rate is 10 percent, and the market risk premium is 9 percent. What is the firm’s weighted average beta? Round your answer to two decimal places. What required equity rate of return should the firm use for average-risk projects in its natural gas pipeline division? Round your answer to one decimal place. % What required equity rate of return should the firm use for average-risk projects in its oil and gas exploration division? Round your answer to one decimal place. %
termountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets: Division Beta Proportion of Assets Natural gas pipelines 0.60 40% Oil and gas production 0.90 30 Oil and gas exploration 1.30 30 The risk-free rate is 10 percent, and the market risk premium is 9 percent. What is the firm’s weighted average beta? Round your answer to two decimal places. What required equity rate of return should the firm use for average-risk projects in its natural gas pipeline division? Round your answer to one decimal place. % What required equity rate of return should the firm use for average-risk projects in its oil and gas exploration division? Round your answer to one decimal place. %
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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Intermountain Resources is a multidivisional company. It has three divisions with the following betas and proportion of the firm’s total assets:
| Division | Beta | Proportion of Assets |
| Natural gas pipelines | 0.60 | 40% |
| Oil and gas production | 0.90 | 30 |
| Oil and gas exploration | 1.30 | 30 |
The risk-free rate is 10 percent, and the market risk premium is 9 percent.
- What is the firm’s weighted average beta? Round your answer to two decimal places.
- What required equity
rate of return should the firm use for average-risk projects in its natural gas pipeline division? Round your answer to one decimal place.
%
- What required equity rate of return should the firm use for average-risk projects in its oil and gas exploration division? Round your answer to one decimal place.
%
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