Reference no: EM131015927
Newtown Propane currently has only a wholesale division and uses only equity capital; however, it is considering creating marketing and retail divisions. Its beta is currently 1.2. The marketing division is expected to have a beta of 1.8, because it will have more risk than the firm's wholesale divison. The retail division is expected to have a beta of 0.7, because it will have less risk than the firm's wholesale division. The risk-free rate is 3.6%, and the market-risk premium is 5.2%. Based on this information, fill in the missing information in the following below
Cost of Capital
Wholesale Division
Marketing Division
Retail division
Wholesale Division options: a. 7.20% b. 7.92% c. 3.60% d. 9.84%
Marketing Division options: a. 14.91% b. 12.96% c. 13.91% d. 15.46%
Retail Division options: a. 13.71% b. 14.91% c. 7.24% d. 15.01%
If 75% of Newtown Propane's total value ends up in the wholesale divison, 10% in the marketing division, and 15% in the retail division, then its investors should require a return of __________. (a. 11.09%, b. 12.64%, c. 14.54%, d. 9.79%)
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: If 75% of Newtown Propane's total value ends up in the wholesale divison, 10% in the marketing division, and 15% in the retail division, then its investors should require a return of __________. (a. 11.09%, b. 12.64%, c. 14.54%, d. 9.79%)
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