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Excel-dmyers190adria × G search Textbook Solutio 992fd10e4bod7c9430fe9do/union/performance/tdxPlayerl.aunch/assignment/454e2972-804047ae-84eb-1 0654b31dfd7/student/ffffifi191b6Se4bofsebc105bda PEARSON Homework: Chapter 11 Save Score: 8.6 of 10 pts 7 of 10 Question 7: Problem 11.05.18 (similar to) Question Hielp Settings Colt Manufacturing has two divisions: 1) pistols, and 2) rifles. Betas for the two divisions have been determined to be beta (pistol) 06 and beta (iíle) -12 The current risk-free rate of return is 39 and the expected market rate of return is 95% T he after-tax cost of debt for Colt is 3% The pistol division's financial proportions are 32.5% debt and 67.5% equity, and the rifle division's are 42.5% debt and 575% equity a. What is the pistol division's WACC? b. What is the tifile division's WACC? a. What is the pistol division's WACC? %(Round to two decimal places)

Explanation / Answer

cost of equity for pistol div = 3% + 0.6*(9.5 - 3)% = 6.90%

WACC of pistol div = 0.325*3% + 0.675*6.90% = 4.76%

cost of equity for rifle = 3% + 1.2*6.5% = 10.80%

WACC of rifle div = 0.425*3% + 0.575*10.80% = 7.49%

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