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Determining the energy and restaurants

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The market risk premium is 8% and the risk-free rate is 4%. Company ABC, is a 100% equity company (no debt), and consists of two divisions that each make up 50% of the company: energy and restaurants. The beta of the energy division is 0.75 while the beta of the restaurant division is 1.5. If ABC wants to expand its energy division, what discount rate ("r") should they use to discount the cash flows for the expansion? Enter your answer as a percentage (i.e. if your answer is 5.23% enter 5.23 not 0.0523)

Reference no: EM131411892

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