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What would be an appropriate opportunity cost of capital

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Question - Books Inc. is a publicly traded publishing company. It has a current stock price of $75 per share and an equity beta of 0.8. Books is consistently profitable and faces a marginal tax rate of 21%. It also maintains a target leverage ratio of 40%. Books' debt is AAA-rated and can be considered essentially risk free. The risk free rate in the economy is 5% and the market premium is 4%. You may assume that the CAPM holds.

What would be an appropriate opportunity cost of capital (or after-tax WACC) for Books to use to value free cash flows in its new online division? (You may assume that the cost of debt capital is the same for the online division as for the existing operations. Please express your answer as a percentage, rounded to the nearest hundredth. For example 10.569% should be entered as 10.57.)

Reference no: EM132975850

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