Reference no: EM13929491
1. Verano Inc. has two business divisions - a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 11% and the waste water clean-up business has a cost of equity capital of 6%. Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another company in the waste water business using equity financing. What is the appropriate cost of capital to evaluate the business?
a. 11%; b. 8.5%; c. 6%; d. 9.3%
2. If a company has many divisions that operate in different lines of business, then the appropriate WACC for evaluating projects in a particular division should be
a. the same across all divisions because the WACC applies to whole firm
b. adjusted downward for divisions in riskier lines of business
c. the same as the WACC for a "pure play" firm that only operates in that line of business
d. No answer text provided
3. If WACC is measured using the net debt method, how are the weights on costs of equity and debt calculated?
a. by dividing the market values of equity and net debt by the total market values of all the securities
b. by dividing the net debt and market value of equity by the enterprise value
c. by dividing the market value of equity by the market value of all securities as before but dividing the net debt by the enterprise value
d. dividing the net debt and market value of equity by the book value of assets
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