SCAN Is a Multi-Divisional Utility Company ?
the Risk-Free Rate Is 8 Percent, and the Market

question 68

Multiple Choice

SCAN is a multi-divisional utility company. SCAN has four divisions with the following betas and proportions of the firm's total assets: ? $\begin{array}{lcc}\text { Division } & \text { Beta } & \% \text { of Assets } \\\text { Electric \& Gas } & 0.85 & 60 \\\text { Bus transportation } & 0.95 & 10 \\\text { Real estate } & 1.40 & 25 \\\text { Recreation } & 1.15 & 5\end{array}$ ?
The risk-free rate is 8 percent, and the market risk premium is 5 percent. If SCAN is considering a residential development, what should the firm use as its cost of equity in evaluating this project?

• A) 13.05%
• B) 16.20%
• C) 12.25%
• D) 15.00%

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Definitions:

Conceptualizing The Future

The process of envisioning and planning for future trends, changes, and developments in an industry or society.

Myopia

Short-sightedness in planning and decision-making, where immediate benefits are prioritized over long-term gains.

Behavioral Economics

studies the effects of psychological, cognitive, emotional, cultural, and social factors on the economic decisions of individuals and institutions and the consequences for market prices, returns, and resource allocation.