Reference no: EM131518770

What is an appropriate required rate of return (hurdle rate) for Food Products and Instruments? How did you get it? (Hints: you may want to use the capital asset pricing model (CAPM) to estimate the cost of equity. This was the answer is was given. The required rate of return or hurdle rate for Food Products and Instruments or any division or firm is the minimum rate that the firm is expected to earn while taking the project, It can generally be determined through the CAPM model: Cost of Equity = Risk free rate + Beta * Risk Premium WACC (Hurdle Rate) = D/D+E * Cost of after tax debt + E/D+E * Cost of Equity D/E Ratios can be calculated by dividing debt to equity. The values can be taken by the firm's annual sheet or management discussions only. The value for this is available at various financial sites as well. Hurdle Rate for food products = D/D+E * Cost of after tax debt + E/D+E * Cost of Equity = 0.6 * 2.2 + 0.4 * 4.8 = 1.32 + 1.92 = 3.24 Hurdle Rate for Instruments = D/D+E * Cost of after tax debt + E/D+E * Cost of Equity = 0.4 * 2.2 + 0.46* 9.4 = 0.88 + 5.64 = 6.52 please explain how these numbers came to be. I have worked them every way possible in my notes.