Verano Ltd

question 101

Multiple Choice

Verano Ltd. has two business divisions - a software product line and a waste water clean-up product line. The software business has a cost of equity capital of 10% and the waste water clean-up business has a cost of equity capital of 7%. Verano has 50% of its revenue from software and the rest from the waste water business. Verano is considering a purchase of another company in the waste water business using equity financing. What is the appropriate cost of capital to evaluate the business?

• A) 8.5%
• B) 10%
• C) 9%
• D) 7%

---

Definitions:

Par Value

The face value of a bond or stock, representing the amount returned to the holder at maturity.

Common Stock

Equity ownership in a corporation, granting voting rights and a share in profits through dividends.

Semi-Annual

Semi-Annual refers to something occurring or done twice a year, typically every six months.

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) at regular intervals until the maturity date, when the principal and final interest payment are repaid.