What will be the shareholders required rate of return

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Reference no: EM131976334

ECRI Corporation is a holding company with four main subsidiaries. The percentage of its business coming from each of the subsidiaries, and their respective betas, are as follows:

Subsidiary Percentage of Business Beta

Electric utility 60% .70

Cable company 25% .90

Real estate 10% 1.30

International/special projects 5% 1.50

What is the holding company’s beta?

Assume that the risk-free rate is 6% and that the market risk premium is 5%.

What is the holding company’s required rate of return?

ECRI is considering a change in its strategic focus: It will reduce its reliance on the electric utility subsidiary so that the percentage of its business from this sub- sidiary will be 50%. At the same time, ECRI will increase its reliance on the in- ternational/special projects division, and the percentage of its business from that subsidiary will rise to 15%. What will be the shareholders’ required rate of return if management adopts these changes?

Reference no: EM131976334

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